What’s Up With Those New Debit Card Chips?

Jessica Kane is a professional blogger who focuses on personal finance and other money matters. She currently writes for Checkworks.com, where you can get personal checks with free shipping.


In the event you haven't noticed, shiny little squares called EMV chips already in about 120 million credit and debit cards through the United States. This new computer chip, formerly known as “Europay, MasterCard, Visa,” is a new security measure designed to keep consumer credit and debit card information from being stolen. It is the banking industry's hope that the new chips will make it a lot harder for criminals to steal the information from the new chips.

What the New Chips Are

The new EMV computer chip is designed to create a unique digital signature ID for each separate transaction, instead of having the information remain constant as with the old magnetic strip. This should make the card data harder to counterfeit, as hackers cannot just electronically skim the credit-card data and encode it onto another card for making fraudulent purchases.

Why The New Chips were Introduced

In 2013 criminals bilked U.S. consumers and banks out of over $2 billion by copying and duplicating the information stored on the magnetic strip on the back of every card. According to the research firm Aite Group, this was a 100 percent increase from 2012.

The new EMV chips are now the global standard for computer-chip enabled cards. In the wake of numerous large-scale data breaches, plus soaring rates of credit-card counterfeiting, U.S. banks are flocking to the new technology in an attempt to protect themselves and consumers from the cost of bank-card fraud. The EMV chip is designed to protect consumers from criminal activity in three main of ways:

1) With the old magnetic stripe, all of the consumer's information is coded on the strip, so if a counterfeiter can copy the information it can be used over and over again. However, the new EMV chip doesn't store information directly on the card, as the stripe did. Instead, the chip creates a new and unique transaction ID every single time the card is used. Additionally, all personal information is encrypted, so even if a hacker is able to access the information it is worthless to him.

2) In most developed parts of the world, the credit-card issuer requires users to input a “personal identification number,” know as a PIN when using the card at a terminal. Along with the new computer chip, this is known as the chip-and-PIN verification method and is what creates the unique ID for each transaction. Additionally, consumers must unlock their card with their PIN number for each transaction, so even if a criminal did get a hold of the card it would be worthless without the pin.

3) Some of the newer EMV cards use “near-field communication,” or NFC, to complete a financial transaction. This is done by waving the chip across a NFC reader or inserting it into a slot and the transaction is completed using radio-wave technology from the chip to the machine. For a criminal to steal the information from the new chip he would have to be literally within a few inches of the card and have an NFC reader.

Do the New Chips really make the cards more secure?

The debit and credit cards with the new EMV chips will certainly increase security. However, at present the EMV technology is an imperfectly-implemented system and will not prevent all fraud from happening.

As the first word in the EMV acronym is “Europe,” many of the U.S. retailers are lagging behind in becoming EMV compliant. As an example, automated gas pumps in the United States, a favorite place for thieves to steal card data, are not mandated to become EMV compliant until 2017. Also, the chip-and-PIN method isn't scheduled to be implemented in the U.S. as widely as other parts of the world. EMV-equipped cards also do not require the PIN to be used when making online or over-the-phone purchases, known as a “card not present” transaction.

A final point, as Bank of America points out, criminals are ingenious at finding ways to defeat new security measures. As the banking industry develops new ways to thwart crooks, the perpetrators will in turn continue to find new ways to commit fraud. However, for now, the new cards do provide an additional layer of protection when used at chip-enabled scanners.