Chip-enabled cards, the latest security measure for debit and credit cards, were recently introduced to the marketplace, with 2016 marking the first full year there was widespread adoption of chip technology in the United States.
So, what is chip technology? The chip is a small square, metallic piece located on the front left-hand side of your card. That small chip holds the payment information formerly located on the magnetic stripe on the back of your card. It is far more difficult for criminals to counterfeit because the data on the chip is encrypted, generating a new random number every time the card is used. Rather than swipe your card at a retailer using the magnetic stripe, chip-card readers allow you to insert the card on the chip side, where it processes the payment information. Note: Your chip card still has the magnetic stripe on the back (more on why later).
The answer is simple: chip cards are more secure than cards with only the magnetic stripe when used at merchants who accept chip cards. Chip cards are part of a nationwide shift that started back in late 2014 to reduce fraud, including the counterfeiting of debit and credit cards.
As fraudsters’ skills advanced, the information on the magnetic stripe on the back of the card became easier to collect, copy, and make counterfeit cards. As a result, the “bad guys” have used creative and aggressive measures to find ways to harvest the data off of those stripes. Some examples include skimming payment information off ATMs and point-of-sale terminals at stores, or breaching a merchant through malware and taking all of their customer card data.
The chip has additional payment data on the card that changes with every card transaction. Even if a fraudster stole the chip information through skimming, the compromised information would not work as it could only be used once. Going forward, the information would have “expired.”
Note: There was a 52 percent decrease in counterfeit fraud at chip-enabled merchants in September 2016 compared to September 2015, according to VISA®.
The movement to strictly chip-enabled cards is a phased approach. The first step is having cards with the chip and magnetic stripe because not all merchants can process the chip. In fact, VISA found that only 39 percent of U.S. storefronts accept chip cards, leaving a considerable remainder of merchants that have yet to adopt the technology.
So when can we expect cards to move to solely the chip and lose the magnetic stripe? Not in the near future: It’s going to take time to get there due to the necessary technology overhaul required to make everything chip-enabled.
In the meantime, processing transactions through the magnetic stripe shows why it’s critical to use your PIN for your debit card whenever possible to add that extra layer of protection. There are times when you may opt to use your debit card as a credit card, prompting for a signature instead of the PIN, but know that using your signature is less secure.
It’s important to note that chip cards protect you only when inserted in a card reader. The chip is not used when making purchases online or over the phone.
Card issuers have been distributing chip-enabled cards since late 2014 as new cards are issued or previous cards expire or are replaced. If you do not have a chip card and would like one, contact your card issuer for more details.
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Disclaimer: Views expressed may not necessarily reflect those of Citizens Bank. The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.
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