Are Smart Chips Safe to Use?

In 2012, all three major credit card networks – American Express, MasterCard, and Visa – announced the adoption of Smart Chip technology for new cards issued in the United States. The “new” technology was a direct response to major credit card breaches at retailers across the United States, and was implemented with the goal of reducing the amount of fraud every year.

Although the Smart Chip was new to many consumers, the technology dates back to 1986, when they first appeared in French credit cards. The chips soon found their way across Europe, and throughout the world before appearing in
American credit cards.

Despite their long history in international transactions, many consumers remain confused to how Smart Chips work. Are Smart Chips exactly like magnetic stripes? More importantly, is it safe to swipe a Smart Chip card the same way we swipe our credit cards every day?

Even though Smart Chips are here to stay, there are still plenty of questions to be answered. Here are some of the most common questions about Smart Chip cards, and how to use them in our everyday lives.

What is a Smart Chip?

The Smart Chips that now appear in our credit and debit cards are often better known by their proper name: the EMV Chip. Resembling the size and shape of a cell phone SIM Card, the name “EMV” came from the three organizations that came together to set the standard: Europay International, MasterCard, and Visa.

Today, the organization that manages the Smart Chip standard is an independent organization, with ownership split between the six companies that use the chip: American Express, China UnionPay, Discover, JCB, MasterCard, and Visa.

Although the first Smart Chip was introduced in 1986, it did not become a global standard until 2013, when the final credit card processors joined the standard. As with all technologies, the development took plenty of time and patience to manage and implement across countries.

What is the difference between a Smart Chip and a magnetic stripe?

While both the Smart Chip and the magnetic stripe work in very similar ways, the two could not be any more different when it comes to technology. At their most basic level, both technologies work to verify a card to an account for transactions. From there, the two take completely different paths to verification.

A magnetic stripe card – the most familiar card to Americans – stores credit card information on the magnetic stripe across the back of the card. To facilitate a transaction, the user swipes their card across a magnetic read head, similar to those found in cassette tape readers. The magnetic read head reads pertinent information from the card, including the account holder’s name, account number, and verification information. From there, the bank returns a message to the vendor that either approves or denies the transaction, based on the account status.

Unlike a magnetic stripe card, a Smart Chip card is not swiped, but instead inserted into a terminal. From there, the card submits much of the same information to the bank, along with a dynamically-created transaction code. The code is used for that transaction only, and is never duplicated twice. The issuing bank then returns a code back to the vendor, either approving or denying the purchase.

While both technologies have their merits, each has their positives and negatives. One of the categories that differentiates between the two types of cards are the security features built in.

Are Smart Chips more secure than magnetic stripes?

When Smart Chip technology was introduced to the United States, one of the primary reasons for the implementation was to increase consumer security at the point of sale. In many ways, the Smart Chip is much more secure than the traditional magnetic stripe.

To begin, magnetic stripe technology dates back to the 1950s, when magnetic tape was used to store data. Because the technology has been available for so long, equipment to both read and decode the credit card information is widely available. To steal the information from a magnetic stripe, a data thief would only need a small amount of equipment that can be purchased online, or at an electronics store.

Furthermore, magnetic stripes contain static data, which are meant to be read the same way every single time. Because of this, a magnetic stripe card can be replicated and used at any terminal accepting magnetic stripe credit cards – many times, without raising any suspicion.

With Smart Chip technology, a dynamic, single-use code is issued with every transaction. The code provides the information to the bank, which in turn provides an “approved” or “denied” response to the vendor. If a thief were to obtain and decode the single-use transaction code, it would be worthless the next time they use it, because the bank would shut down the code.

Furthermore, Smart Chips cannot be replicated as easily as magnetic stripes. Because a Smart Chip contains dynamic data, replicating a Smart Chip is much more difficult, and requires much more hardware. Therefore, Smart Chips are arguably more secure – and reliable – than a magnetic stripe.

I have a card with a Smart Chip – now what?

As of today, nothing changes for those who have a card with a Smart Chip. In the United States, there are several deadlines for vendors to meet the new standards, allowing for plenty of time to start using the Smart Chip as the primary card authenticator.

During the transition, vendors had until October 2015 to begin accepting the chip as the primary form of payment. While the deadline was not a requirement, vendors who have not completed the transition will be held liable for fraudulent purchases. At ATMs across the country, banks and vendors have different deadlines. MasterCard set a deadline for October 2016, while Visa has a deadline of October 2017 to begin accepting Smart Chip cards. At gas pumps, the deadline across all vendors is October 2020.

For many transactions, magnetic stripe cards will still be accepted and honored as valid transactions. However, as time moves on, the magnetic stripe will slowly be replaced by the Smart Chip for all credit and debit card transactions.

Is it truly safe to swipe my card if it has a Smart Chip?

Although it is not as secure as the Smart Chip, those who have a card with a magnetic strip can continue to swipe their card as normal, and it will be as safe as it has ever been. However, the day will soon come when credit card transactions will not be done by swipe, but by inserting a card instead. By understanding the difference between the Smart Chip and the magnetic stripe, consumers can make smart decisions when it comes to using the Smart Chip.

Have you received your Smart Chip yet? What do you think of it? Share with us and your fellow readers below!