Chip Cards 101

April 11, 2016

Photo credit: Carsten-Reisinger-iStock-Thinkstock

The new EMV (Europay, MasterCard and Visa) chip cards are here! And, with the “smart cards” comes a lot of confusion.

Do I swipe? Do I need to use a PIN? Why can’t I keep my old card? Why don’t I have my chip card yet? What does the chip do anyway?

Today, it would be hard to find someone who has not experienced fraud on a debit or credit card. Technology has made it easy for criminals to copy the magnetic stripe on cards, a process known as “cloning.” They can create a new card by stealing your card number from a merchant or website, copying it with a skimmer attached to an ATM or self-serve gas pump, or even copying a card right in front of you during a purchase without your knowledge. In recent years, credit card fraud in the U.S. has increased to more than 8 billion dollars annually.

EMV chip cards, along with a merchant chip reader, make cloning a card nearly impossible. When the card is inserted into the chip reader, it generates a unique authentication code for that transaction. If someone tries to copy the unique code, the validation will not work for future transactions. On the other hand, the information on a magnetic strip is always the same, so it can be used for any future transactions.

In October 2015, new liability guidelines went into place for all debit and credit card transactions. If a fraudulent transaction occurs, the liability is determined by the technology.

For example, an EMV chip card is “swiped” at a merchant who does not have chip technology and the transaction is fraudulent. In this case, the merchant takes the loss.

If a non-chip card is swiped through a chip reader and there is fraud, the financial institution will take the loss. Some banks have a zero liability which means they guarantee that you will never be liable for any fraudulent charge.

So, why hasn’t every financial institution switched to EMV chip cards? Many U.S. merchants and financial institutions are still in the process of converting to EMV chip technology, but it is expensive to implement. In addition, every card in circulation must be replaced. (I have seven in my wallet right now, yikes!)

ATM machines and gas stations are next in line to implement the new EMV chip card readers. The same liability guidelines noted above will take effect for ATM and gas station owners in October 2017. MasterCard is changing its ATM liability in October of 2016. These upgrades will eliminate the opportunity for criminals to install skimmers and greatly reduce fraudulent activity.

One day, we may also see an online PIN replace the CVV security code located on the back of your card. Eventually, cards may not have a magnetic strip at all. Currently, U.S. credit cards are on a chip and signature combination, but in the future they will use the chip only.


This post was written by Chris Hardenberger, a branch manager at Westerra Credit Union. If you’d like to submit a guest post, email us at