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Why Are Chip Cards More Secure Than Magnetic Stripe Cards?

Published by Clay on 10-14-2014 at 11:21 AM


Magnetic-stripe cards are pretty outdated — they’ve been around since the ’60s. But things are changing. The next generation of credit cards — chip cards (also known as EMV cards) — are coming down the pipeline next year. In fact, you may have already received one from your bank.

Chip cards are the standard in most parts of the world because they’re way harder to counterfeit than their magnetic-stripe predecessors. They’re primarily designed to prevent fraudulent transactions that take place when someone physically swipes a counterfeit card at a payment terminal.

So what exactly helps chip cards fight fraud? Two key features:

They’re really hard to clone 
Magnetic-stripe cards are, well, magnetized. When you swipe them, the payment processor reads their magnetic fields and matches them to your bank account information. The problem with this is that the data is static, making it easier for fraudsters to lift your information and clone it onto a new card. In fact, there’s something called a skimmer — which they can get or make for as little as $20 — that can do this pretty easily.

On the other hand, the data on chip cards is constantly changing, making it extremely hard to isolate and extract. To rip it off, someone would have to get into the physical chip circuit and manipulate things to get your bank information. Not only is this level of data surgery really difficult, but it also requires a set of high-tech equipment that can cost north of $1 million. That’s probably not the kind of cash your average fraudster has handy.

They’re cryptography-ed out 
Magnetic-stripe cards broadcast bank information into the payment terminal as-is.  Chip cards are different in that they have sophisticated encryption built right into the chip. When you dip a chip card (it’s a dip instead of a swipe), it talks back and forth with the payment terminal in a secret language to make sure it’s actually you who’s paying.

- Adaptation from Square, Inc.  See more at: