If you’re like most Americans, you’ve probably got at least one debit or credit card in your wallet that has a metal square embedded on the front. That square is called an EMV chip, and it’s actually a tiny microchip that serves a unique purpose. In fact, it improves payment security when you use a debit or credit card to pay. It also works when you tap a contactless card at a chip-enabled physical point of sale terminal.
Here’s a closer look at what the chip on your card does, and why it’s worth using when you have the option.
How Chip Cards Came To Be
The official term for them is EMV chip cards. The acronym is a nod to three organizations: Europay, MasterCard and Visa. The Secure Technology Alliance says they developed the specifications for EMV technology to improve payment security. Cardholders in the United States may still be getting used to chip cards, but EMV has been in Europe, Canada, Asia, and Latin America for years. In those regions, incidents of card payment fraud have dropped significantly as adoption of EMV technology increases. Hence, the United States hopped on the chip card bandwagon.
Why Not All Cards Have Chips
Card issuers in the U.S. began to issue EMV chip cards back in 2014, but haven’t yet updated all cards to include a chip. Contact your issuer and ask about a chip card if you still have a magnetic stripe-only card. Visa says that about 70% of its debit and credit cards now have chips.
EMVCo reports that about half of U.S. purchases made at a physical point of sale are now made with a chip card, at a chip-enabled point of sale terminal.
How the Chip Improves Payment Security
The Security Technology Alliance says that an EMV chip is nearly impossible to duplicate. This reduces the risk of card counterfeiting. The chip also offers greater security behind the scenes. When you insert your chip card to pay at the point of sale, it uses a process called tokenization.
First Data tells us how tokenization works:
- When you insert your chip card into the chip-enabled terminal to pay, the processing information is sent over the network for authorization. This contains info like your 16 digit personal account number, your name, and address.
- They send your information to “a centralized and highly secure server” called a vault.
- Your sensitive information stays in the vault and gets replaced with a randomly generated number, called a token. This token is used to process this one specific transaction.
- The token goes back to the merchant systems to process your payment. Everyone who is supposed to be involved in the transaction — the merchant, the payment network, and your card issuer — knows what the token represents.
- If a cybercriminal intercepts your payment transaction, the token is meaningless to them. They cannot determine what account number the token represents or associate your identity with it.
Without tokenization, a cybercriminal could potentially access information like your name and account number and use it fraudulently. To combat this, companies added tokenization as an additional layer of security.
What If a Merchant Doesn’t Have a Chip Card Terminal?
Nearly 70% of merchants in the U.S. now have chip-enabled terminals according to Visa. Gas stations have until 2020 to update their pay at the pump terminals. When you come across a merchant who doesn’t have a chip-enabled terminal, you can still pay using the magnetic stripe. However, the chip won’t work its magic in the swipe transaction, and tokenization will not be used when the transaction is processed. (For this reason, the chip doesn’t apply to purchases you make online, or over the phone with your chip card.)
If a cyberthief is able to intercept the transaction and the merchant didn’t offer a chip-enabled terminal, the merchant could be held responsible for the costs of a breach, including fines, fees, and lawsuits. Now that the deadlines have expired for most merchants to update their terminals, the party in the transaction that offered the lowest level of security is liable.
The Bottom Line: Use Your Chip Card Whenever You Can
Using your chip card will not completely shield you from being a victim of identity theft or financial fraud. It’s an added layer of security worth using to your advantage whenever possible. Visa says that counterfeit fraud has decreased 80% for merchants who accept chip payments. This is a significant change, as it was once the most common form of fraud in the United States. Remember, to get this security, the terminal has to be chip enabled. And if you only swipe the strip, you aren’t getting the chip’s protection.