Credit cards are arguably one of the cornerstones of the American consumer market and have certainly become part of our lives. In 2017, the average American held 3.1 credit cards, and according to the Federal Reserves, the total US credit card debt had topped 1 trillion.

This device has gone a long way to become the form we know. Right now, a typical credit card holds means of identification, usually a signature or a chip, that can authenticate a person and authorize payments. We will go through the history of credit cards, the introduction and benefits of a chip credit card (or EMV), as well as how you can adapt it for your business so we can understand how chip-enabled credit cards work.

History of credit cards

Credit cards, as we know them today, were first introduced in 1950 by the Diners’ Club, in which customers could make purchases in multiple shops or establishments with a single card for the first time. As bank credit card systems were introduced as a major innovation later, consumers could either pay their bills in whole or by installments with interest. Most credit cards were affiliated with major banks as the services supporting credit cards continued to expand.

The proliferation of credit cards in the US occurred in the late 20th century, and with technological advancements came more sophisticated security measures. While earlier credit cards used imprints as authentication, the introduction of magnetic stripes and specialized computer equipment improved card security significantly and was state-of-the-art at the time. 

Nowadays, credit cards usually come with embedded computer chips, known as EMV, to allow encrypted authentication and better prevent fraud and identity theft. 


What is a credit card chip?

To understand how credit card chips work, we need to know what is a credit card chip. A credit card chip, or an EMV chip, is a small computer chip embedded in a credit card. It allows cardholders and merchants to make two-way and fully encrypted authentications when authorizing a payment, so the process is less prone to hackers and fraudsters. 

EMV stands for Europay, MasterCard, and Visa and originated in Europe. The technology took off in the US recently, with merchants and credit card providers upgrading their infrastructure to accommodate the new cards and readers. EMV is now one of the most secure forms of payment and is almost 100% in preventing in-store fraud. According to the Federal Reserve, the amount of in-store fraud declined by 48% in one year. That further decreased by 87% in three years, according to Visa. 


Why was the chip included?

There are two major benefits of including a chip (or EMV) in a credit card. First, the encryption security acts as an extra layer of protection against fraud. During a purchase, all information between the card and the card reader is encrypted, which no third parties can access. And unlike magnetic stripes, every transaction code is unique, making it much harder for thieves or fraudsters to hack your account. 

Second, EMV cards can better support “offline” transactions. Some card readers can verify credit cards internally without connecting to the internet. This can help you continue your business when there is delayed or limited internet access. At the same time, customers can enjoy a faster checkout experience without having to wait for the connection. 


How does the credit card chips work

Here are the basic steps of how a credit card chip works. 

  • Step one: initiating payment

The customer presents a card at the storefront. The card reader will access the card information and verify its authenticity. This is done either via internet access and linking with the issuing bank’s system or internally in the card reader. 

  • Step two: authorizing payment

The card provider or card reader will then verify whether the card details are correct. The customer may need to provide their PIN or signature as part of the process. If everything looks right, the issuing bank will then authorize the payment.

  • Step three: sending payment

The card-issuing bank will send a signal to the card reader, printing a receipt as proof that the payment is successful. Or, if the card reader has an in-built authorization key, the process will be done internally. It usually takes two to three days for the customer’s bank to deduct the payment from their account and send it over to the merchant. 


How do credit card readers work?

Now, let’s look at the card readers in detail. Its role is basically of an authenticator and a messenger. It extracts information from the customer’s information and sends it to the payment processor. It will then collect information from the card-issuing bank and approve the payment as long as sufficient funds are available. 

The credit card’s chip stores all the customer’s essential bank details in a dynamic manner, making it almost impossible for fraudsters to extract anything usable. When connected with the chip, the card reader will create a unique code, which will then be sent to the issuing bank or its internal reading mechanism. This code is a secure number that can only be used once, and this process is called payment tokenization. 

The process starts when the customer inserts the EMV credit card into the reader. The chip and the card reader will then communicate and kick off the authentication. And for contactless card readers and even digital wallets, customers only need to hover their card or mobile phone above the reader. Some card readers support offline authentications by allowing the reader to authenticate the credit card through its preloaded keys for each transaction. 

Chip and signature vs chip and PIN, which one is better?

When it comes to implementing your EMV card solutions, you may wonder whether you should adopt chip and signature or chip and pin as your verification mode. Although either method is designed to help you authenticate your customers’ details before the translation, the question is which one is better in preventing fraud. 

Right now, most credit cards issued in the US are signature-oriented. Though some support both functions, the norm is still on prioritizing signature to authenticate a payment. Still, PIN authentication is more undoubtedly more secure, as it is harder to guess a PIN than to forge a signature. So, in this case, it is a tradeoff between convenience and enhanced security. Speak with your provider to find out more. 

At Payline, we have different solutions for you, so you can cater for different types of customers while safeguarding yourself against frauds and other risks. 


How Payline supports chips credit cards

Right now, we have different ways to help you build your business using different chip credit card options. Whether you are securing a tabletop payment for card readers, exploring options for contactless payment, or looking into full retail solutions, we certainly have something for you. 

Suppose you want to take your credit card payments to a higher level. In that case, we can help you with implementing different solutions like inventory management, loyalty programs, employee management, and credit card processing. 

We implement our solutions by two principles. First, we are committed to your security and safety. We understand the consequences of fraud and the troubles that it brings. Hence, as your partner, our solutions are here to look after your security to the utmost. Second, we are here to help you build solutions customized for your circumstances. You can make the most out of your business and cater to the largest customer pool possible. 


How to set up with Payline

At Payline, we are committed to making sure the credit cards work, as well as seeing your business grow. We will implement your tailored solution in a few steps. 

  • Speak with our representatives and tell us what you need.
  • We’ll recommend the right solutions for your stores, and which card reader is the most suitable.
  • After that, we’ll help you implement your solution and cover all aspects of things while answering any questions you may have.
  • Finally, we’re here to provide support any time you need, and there is no commitment or binding contract.

Our transparent plans are easy to find and clearly outlined on its website. Speak with our representatives if you have any special needs so that we can keep your credit card solutions as easy and hassle-free as possible. 


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