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Why Are There Chips in Credit Cards?

Tamsen Butler
Credit card security

The introduction of credit card chips caused a little confusion among consumers as they tried to figure out if they were supposed to swipe or insert their credit and debit cards when making purchases in person. The minor annoyance was worth it, though, as these chips elevate the security of cards significantly and make it much more difficult for fraudulent card use.

EMV Explained

The EMV (which stands for Europay, MasterCard and Visa) chips appearing on credit cards are actual computer chips containing information to provide to merchants to complete payment. The biggest difference between the EMV chip and the magnetic strip is the information presented to merchants with each use:

  • Magnetic strips provide all information needed (such as account information and identifying information) with every single use; the processing information doesn't change, so if it's copied once it can be used multiple times.
  • EMV chips create unique, encrypted transaction codes with every use, which means copying the information is useless because it will only work once - with the initial transaction. Your location is not tracked via the chip system.

Requirements for Card Issuers and Merchants

Chip credit cards are safer to use and are quickly becoming the standard globally. Major credit card issuers within the United States issued an October 1, 2015 deadline that shifted the liability of fraudulent magnetic credit card use back to the merchant which prompted most merchants to get on board with EMV technology. This was not a shift in laws, but rather a shift in liability, which was sufficient to prompt merchants to provide chip-enabled terminals for purchases. Gas stations have until October 2020 to have chip-enable terminals or they will become liable for fraudulent use.

Benefits for All Involved in Transactions

Increased security is the biggest benefit with chip cards for both consumers and compliant retailers - neither of which will be liable for credit card fraud when using a chip-enabled card. So while the risk of fraudulent use is less, if it does occur, neither the cardholder nor the merchant will have to pay for the fraudulent charges.

Global Acceptance

The United States and Europe started using EMV technology around the same time (around 1994) but chip-enabled cards were more quickly accepted by merchants as the new standard in Europe. In fact, the United States has lagged behind most other countries in EMV acceptance as the new standard, below Europe, Asia, Africa and the Middle East. In 2017, more than half of all credit card transactions around the globe were made by EMV-enabled cards.

Benefits to Issuers and Merchants

The increased security of EMV cards means fewer instances of fraudulent use, which is a huge benefit to issuers. Merchants providing chip-enabled terminals are not liable for fraudulent use - meaning if customers dispute charges on cards, the merchant is not liable. Estimates place the drop in fraudulent credit card usage at around an impressive 70% since the adoption of chip technology.

Cards Without Chips Still Available

Those who want a card without a chip for whatever reason may want to look into prepaid card options as many of these are still chipless. Consumers can also speak to their card issuer to find out about chipless card options if they exist.

No Perfect Solution

EMV cards do not stop all instances of credit card fraud. New methods of skimming, called shimming, are being attempted by thieves globally. As credit card security gets more sophisticated, so do methods to steal from them. While it is possible to obtain a card that does not have a chip, this opportunity is likely waning; it's important to note that the biggest complaint of chip cards is that the transaction time is slightly longer, yet the benefits of increased security far outweigh the few extra seconds it takes for a chip transaction to go through.

Why Are There Chips in Credit Cards?