What’s with the Chip?

Have you recently received a new credit or debit card with a metal chip on it? You may have noticed some people inserting these cards rather than swiping in the checkout lane. Here are a few things you should know about this new chip technology popping up on cards.

The Good

For credit and debit cards to work, the cards must provide your “payment credentials” information to the merchant that takes your card. The merchant uses this information to authorize the transaction. This is what that magnetic stripe, also known as a “mag stripe,” on the back of your card currently does. However, mag stripes are vulnerable to “counterfeit fraud” which is when a thief copies the data contained in a card’s magnetic stripe. Using this copied information, the thief manufacture phony or counterfeit cards and use them for fraudulent purposes. However, it is far more difficult for a fraudster to make a fake chip card than to make a fake mag stripe card.

These chip cards are common internationally, where spenders dip their card rather than swipe it, because they make counterfeit fraud, which recently accounted for more than a third of all credit card fraud in the U.S., nearly impossible.

The shift to chip cards won’t affect your legal rights that protect you from credit card and debit card fraud. But to be fully protected, you must still review your credit card and debit card statements regularly, and report fraudulent charges immediately.

The Bad

Ultimately there is very little downside associated with these chips. The only real problem is that while these chip cards can provide consumers an extra layer of protection not all retailers have the necessary chip readers and it may be quite a while before we have universal adoption by retailers. Luckily we can still use the magnetic stripe on the back of our cards in stores without these chip readers.

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