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Credit Card Chip
11 Apr 2019

The Mysterious Technology Behind the Credit Card Chip Explained

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Did you know that in 2018 there were over 200,000 breached credit card accounts?

No wonder that credit card companies are taking precautions and you have more than likely been issued a replacement card with a chip on it.

It almost seems like one day we woke up and all of our credit cards had chips on them. But what do they do?

Keep reading to learn the tech behind the credit card chip.

The Technology Behind the Credit Card Chip

Around the fall of 2015, the United States began switching from swiping their credit cards to inserting their cards when paying at a store. in 2017 Visa reported that they had over two million merchant locations accepting chip cards.


First, let’s chat about what EMV is. It stands for Europay, MasterCard, and Visa. Now EMV represents every credit card with a chip even if they’re issued by smaller companies than the three main ones mentioned above.

How Do They Work?

Every new transaction when a customer pays the chip generates a new number. This makes counterfeiting the card impossible.

The customer inserts their card into a reader and then signs to complete their purchase vs the previous method of swiping their card and then signing for their purchase. EMV helps the transactions be more secure and help reduce credit card fraud.

Types of Chip Cards

There are two forms of chip cards here in the United States. There’s a chip-and-pin card and a chip-and-signature card. None of which cost the customer anything extra.

A chip-and-pin card is when you enter your card after making a purchase and it asks for your pin instead of a signature. This is how most bank debit cards are setup they require a pin vs a signature.

If the merchant’s machine doesn’t support entering a pin then it will ask you for a signature instead. A chip-and-signature card is when the machine asks for a signature instead of a pin after you insert your card.

EMV Security

We touched on it a bit above but to break it down further when you use a chip card it creates a unique code every single time the card is inserted into the machine to pay. Before when chips didn’t exist the same set of numbers were always used no matter where the card was swiped.

The old way before chips existed made it easier for people to steal the numbers and use the cards to order things online or to make a counterfeit card with the stolen data. To duplicate with the new EMV system it’s almost impossible for thieves unless they have expensive equipment to do it.

Is It Working?

Numbers don’t usually die and the numbers for money stolen through fraud had gone down 58% in December of 2016.  This shows that yes the chips are working. If it hadn’t been working in Europe and other parts of the world wouldn’t have been using the technology since the ’90s.

What Does This Mean for Your Business?

When EMV technology first began to get released in the United States, if there were a security breach retailers weren’t responsible for covering it. Today this is a different story your business is liable for security breaches unless you offer your clients the new EMV technology.

In the past, the credit card issuers would pay for the fraudulent charges. Merchants weren’t really worried about any fraud that occurred because they weren’t held liable to come out of pocket to cover the charges.

The point is to encourage retailers to adopt higher security in their business. When the liability began to change over retailers complained about the expense of upgrading to the new card readers. The good news is that you don’t have to pay anything upfront or any fixed costs but they are pricey and it’s a process to get them installed.

Process for a Business

First, the business has to buy their machine which can add up depending on how many card readers you need. Once the business has the reader they have to install new software that handles the extra EMV code information. Last, they need to go through a certification process for each credit card network that they want to accept in their store.

You might have been to a register where they have the chip reader machine but they ask you to swipe it’s because they’re waiting to get certifications and finish up setting the machine.


When EMV technology first came over to the states it was slow. People complained about how long it took to make a purchase because it would take much longer than swiping the card. In 2017 the chip cards became faster than it’s predecessor cards and now are faster than ever.

Breakdown of How EMV Cards Work

First, as a client, you insert your card into the credit card chip reader when you’re given your total amount to pay. At this point, the reader picks up your credit card number like it does when you swipe your card and it picks up an extra code. The code works like having a pin number.

If the reader doesn’t pick up the special code then the transaction gets denied. This is why counterfeiting a chip card is virtually impossible. To make it even more difficult to counterfeit the chip card every single transaction the chip in the card produces a unique special code.

A good point to know is that each code is completely random. There isn’t a special way for the chip to decide what EMV code to make next. Instead of only resetting one time a day the EMV code resets after each transaction.


Although EMV cards are safer they don’t provide extra security for purchases that are made virtually. They are effective for in-person purchases where you have to verify your card and insert into a machine. Online the only requirement is the card number, expiration date, and either the zip code or security code on the back of the card.

Credit card thieves understand that the technology that they relied upon to scam is slowly phasing out they are committing more fraud before they don’t have the opportunity. They are targeting merchants that haven’t adopted the EMV technology yet because they understand that those businesses are now responsible for those charges.

What About When I Travel?

Most people worry about not being able to use their chip card when they travel but usually, you’re able to use them during your travels outside of the United States. EMV is the standard technology in Europe and in Canada. Keep in mind that in those countries they expect you to use your pin when you make your purchase.

All terminals should have the technology to accept either pin or signature so if for some reason you don’t have a pin you can use your signature. They might want extra security such as a signed identification to compare the signatures.

Setting Your Pin

The pin on your card depends on the card issuer. Setting the pin also depends on the card issuer. Some will assign you a pin upfront that you can later change it.

Others will allow you to create a pin and if you fail to do it within a certain time they will assign a pin for you.

If they don’t assign a pin and don’t tell you to create one then you will have to ask about the process to set up a pin. Some allow you to set up a pin online or over the phone.

Cash Advances

The new EMV chip cards still allow you to take out a cash advance at an ATM machine. Keep in mind that depending on the credit card issuer the pin for a cash advance might be different from your everyday purchase pin.

Feeling like an EMV Pro?

Now that you have learned the ins and outs, pros and cons of credit card chip cards you will feel like a pro next time you insert your card into a card reader to pay vs swiping your card. Credit card security will continue to improve because merchants and card issuers don’t want to pay for fraudulent activity since the financial burden falls on their shoulders.

Although there’s new technology to help prevent hackers from stealing your card information keep an eye out for any fraudulent activity. If you see anything that’s not right report it immediately.

If you are looking to learn all things related to credit cards and loans, check out our resources section where we have a ton of information and tips. Here are some other articles you might find helpful:

How to set a Travel notice for your Chase or other credit card
9 ways to protect your credit card information at the gas station
The ten worst credit card mistakes a person can make
Top 5 credit cards from Capital One