Thoughts

How Did the Credit Card Chip Get So Popular?

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The rise of the credit card chip in the last few years has been remarkable. Chip readers have made our transactions safer and easier than ever before, but how did they come about? If you would like to learn more, check out this brief history!

How the Credit Card Chip Was Created

Credit card chips are also known as EMV chips, which stands for the three credit card companies who created them, Europay, Mastercard and Visa. These chip cards and their authentication technology are now the global standards for credit card security.

Magnetic strip readers proved too easy to exploit. This lead to an increase in widespread credit card fraud and customer data breaches.
One of the main reasons that credit card chips became popular was the United States decision to start confirming transactions over phone lines in the 1980s.

This method was cheap for the United States at three cents a call. Using a phone line verification for card purchases in Europe could cost between 35 and 40 cents, which was not a sustainable expense.

The prototypes of credit cards with security chips have been around since 1993, but they first saw widespread use in 1994. Europe was the first market to use the chip-enabled card and the cards were marketed as a safety measure for POS or point of sale transactions. The British credit chip users created the term “chip and PIN” to describe the first application of this technology. This is because personal identification numbers were required to make a purchase.

Every time a chip reader scans your credit card, it creates a unique transaction for each purchase that can only be used a single time. Magnetic strip readers can use the same code over and over, which is why all United States merchants are required to use the card’s chip or face liability since October 1st, 2015.

How to Use a Chipped Credit Card

Many people believe that the government was responsible for chipped cards becoming standard. Despite rumors, the credit card chip requirements in the United States started with the financial industry itself. The new rules have only been in place for a couple of years. This means it is unlikely that you will find chip readers in every store you shop at.

This decision has greatly reduced your potential liability if you suffer credit card fraud. Following the rule change, the merchant will be held liable for not updating their reader. An estimated 85 percent of new credit cards in the United States issued in 2017 had chips installed. Over time, credit card ships will become standard across all point of sale retailer

Rather than needing to master a timed swiping motion to use, chipped credit cards are inserted into the front of the provided chip reader. The insertion of the chip allows your card to contact the financial institution that issued it. A unique transaction ID helps to both confirm the sale and ensure that the credit card is legitimate.

This is not to say that your chipped credit card won’t work at a location with only magnetic readers, but you may have to input a PIN to confirm your buy. Magnetic strip readers process data with slightly greater speed, but the difference in security is vast.

The Future of EMV Technology

Recent technology is out that allows users to tap their card to scan the security chips and make purchases. Some credit card providers may need you to input your PIN every time you make a purchase. This may impact which card you decide to go with. There is even a possibility that the chips may be able to track the location where a sale is made as a further security measure.

Despite the popularity of credit card chips, several credit card providers and major retailers haven’t fully integrated EMV technology. According to Visa, about 50 percent of United States businesses can accept chipped cards at their locations. Mastercard also claims that about 38 percent of its merchant network is also following the new rules.

For some reason, the United States remains the largest economic market to still use magnetic strips as it’s main scanning system. If you happen to be planning on traveling abroad, you may find yourself at a disadvantage when you try to make a buy.

This doesn’t mean that your United States credit card will work everywhere. You may find that having a chipped credit card make a European merchant less reluctant to do business, however.

Each credit card company has a different strategy in rolling out chip-enabled cards. Some companies are simply replacing their customer’s old cards with chipped ones once they expire.

Other credit card providers have yet to make any replacements. While chipped cards may become the norm, it may take some time for a complete national rollout to become a reality.

Credit Card Chips and Issues with Cybercrime Security

Unfortunately, it is inescapable that once you start cutting down on one form of criminal activity, another will rise in its place. Any time there is a change in technology that improves security, that will always drive the criminal element in another direction.

Any country that has adopted credit card chips sees a notable decline in counterfeit credit card usage and personal fraud. They will also see a later rise in CNP or card not present fraud, which involves you or your customer’s card info becoming compromised.

EMV chips allow your bank or credit card company to keep track of where your card is used, the actual amount charged and who is charging to your card. If fraud happens, your card issues will try to get in contact with you to verify if the charge is genuine. Your account will be credited after your company determines the charge it to be a fraud.

Use Credit Card Chips with Confidence

While the United States has only recently adopted widespread chipped credit cards, they are a safer and easier way to do business. If you want to learn more about the right credit card chips for you, check out Bonsai Finance today!

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