Understanding How Debit Chip Cards Work

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You may have noticed that debit cards look different than they did a few years ago. Also, you might be wondering what’s behind the change. Here’s what you need to know about chip-enabled cards, including how they work to protect you each time you make a purchase.

What Is a Chip Card?

By now you’ve probably become accustomed to cutting-edge technology running our world. Whether it’s the optic scanner that rings your groceries up at the market or an AI supercomputer you’ve read about that can perform quadrillions of calculations per second. Debit cards embedded with microchips are just another bit of the technology that’s becoming the norm in daily life.

In recent years, you’ve likely been issued debit and credit cards that appear more high-tech than they did in the past. That’s because cards are now being embedded with a small chip. Located usually above the numbers, it serves as a means of communicating your data to point-of-sale terminals at shops and restaurants. The chips are typically gold, bronze, or silver in color and are flush against the surface of the card. These cards with microchips do a better job of protecting your account information than the old-school magnetic strip has done. As a result, they are slowly but surely replacing that outdated technology.

How Do Chips Protect Your Data?

Magnetic strips on the backs of debit cards store your name, account number, card expiration date, and security code. That means the data needed to access your account is readily available to anyone who swipes that card through a reader. Thieves have gone so far as to install counterfeit readers at ATMs or gas pumps to illicitly record your account details. This makes it very easy for your data to fall into the wrong hands. Sadly, it’s not unusual for people to have their bank accounts wiped out before they even notice there’s been a breach.

Chip cards do a much better job of protecting your data because they don’t store your actual account information. Instead, when your chip card is communicating with a terminal it transmits a single-use code that is only valid for the transaction you are completing. That means that even if your information falls into the wrong hands, it can’t be used for any additional purchases. If your card is lost or stolen, no vital information can be captured directly from it, and the card can’t be used for any onsite purchases without your PIN.

If Chips Are So Great, Why Do My Cards Still Have Magnetic Strips?

In the 1990s, European banks began replacing decades-old strip encoding with microchip technology. The US has been behind the curve in rolling out this advancement. Luckily, chances are that most of your debit and credit plastic now features chips. However, you might have noticed that many cards still have strips that leave your data vulnerable.

The simple reason that US cards continue to have a magnetic strip is that not all merchants are equipped to process transactions with chip cards. Although merchants are often assessed higher fees and/or bear the cost of fraudulent charges that are processed without a chip, some still have not converted to new card readers. Low-volume businesses, those whose transactions are typically for small amounts, or shops that are primarily cash-based may not have made the investment of upgrading to a chip terminal. That being said, it’s expected that magnetic strips will eventually be phased out entirely. Moving forward, you’ll only be using chip technology in the future.

Although you still may be asked to swipe your card from time to time, chip-embedded plastic is here to stay. Having a basic understanding of what chips are and how they work can help you keep up with the times. Additionally, it should make you feel a bit more confident that your personal data is being protected each time you use your card to make a purchase.

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