A few weeks back, as you were gearing up for holiday spending, you might have noticed you got a new credit card – a chip credit card.
Your first thought was probably, "Wow, this is super inconvenient."
Your second thought was probably, "Hey what’s this weird gold thing on my card? It’s different and I don’t like it."
Yes, getting a new credit card and updating your Netflix account is a little annoying, and yes, the new card messes with your chip’s aesthetics (for those who care about that sort of thing). But this new credit card could end up saving you a lot of time and hassle in the long run.
What is a chip credit card?
A chip credit card is just what it sounds like: a credit card with a small computer chip in it. They’re widely known as chip and PIN credit cards, but here in the United States we haven’t quite gotten to the "PIN" step yet (more on that in a bit). They’re also called EMV cards, named after Europay, Mastercard, and Visa – the biggest payment processors in the world.
To understand what a chip credit card is, it’s important to understand your old credit cards. You know the basics: the credit card number, the name, the expiration date, the security code. Nothing you haven’t seen before, right? All of that information is stored on the magnetic strip on the back of your card. When you buy something, the cashier swipes your card, the store’s system checks that information with the credit card company, and if it all checks out then you’re on your way.
Right, except for it’s not the safest way to do things.
You might have heard of the Target credit card breach. Or the one at Home Depot. Or any number of other breaches at retailers. The problem with the old magnetic stripe credit cards is that when it exchanges information with the credit card company with a swipe, that information is the same every time; it’s essentially the same information that’s printed on your card.
That means if hackers breach a retailer’s system – which they seem to do often – they have your credit card information and can rack up charges, doing a real number on your finances.
Chip credit cards work a little differently. They use the computer chip embedded in them to communicate with the credit card company, but it’s a unique communication each time. So now if there’s a security breach, the hackers don’t have one-size-fits-all access to your card information.
It also changes the way you use your credit card. Instead of swiping it, you insert it into the credit card reader (sometimes called "dipping") and leave it there until the communication is done. It adds a few extra seconds to your transaction, but it’s a small price to pay for a little peace of mind.
In other parts of the world, these cards are chip and PIN-based. We already use PINs (personal identification numbers) for a variety of different things, like debit cards and ATMs, but the chip cards being used in the United States are largely chip and signature. While this is a big step forward for credit card security, signatures aren’t as secure as PINs because they’re easier to forge. After all, when was the last time you really took your time with your signature at checkout instead of just scribbling a few loops on a pad and hurried out the door?
There are a few theories about why this is – Americans are mostly used to using signatures with credit cards, we don’t want to memorize another PIN, and credit card companies don’t want their card being the one with an added layer that deters people from using it – but it highlights the main issue of the credit card conversation: the U.S. is lagging behind other parts of the world.
Why we need chip credit cards
Most of the developed world is already using chip credit cards. The U.S. made the switch because...well, we needed to. In 2012, the U.S. accounted for almost 24% of the world’s payment card transactions but had the distinction of being responsible for almost half of the world’s card fraud at over 47%.
Clearly, something needed to change. That’s why a deadline of October 1, 2015 was set for retailers to accept chip credit cards. They aren’t required to, but now any damages from a security breach like we’ve seen in the past will all be on the retailers rather than split with the credit card companies.
But why did it take so long? After all, other countries have had these new, more secure standards in place for years.
It comes down to two things: scale and expense.
In case you haven’t looked at a map in a while, the United States is a pretty big country, and we have a lot of people and a lot of retailers. That means providing enough lead up times for retailers to get new credit card readers that could handle chips, as well as getting new cards out to the nearly 170 million credit card owners in the country.
And, of course, all of that comes at a price. Vox reports that chip credit cards cost around $4 to produce compared to less than a dollar for magnetic strip cards. It’s no wonder that credit card companies held off as long as possible; new cards are a very real, immediate expense, as opposed to potential costs of hypothetical data breaches.
Stay mindful during the holidays
This is great news! You have your new credit card in wallet so you can do all of your gift buying without worry!
Not quite. Security expert Brian Krebs told NPR that while chip credit cards do a lot for security, they aren’t able to protect against all types of fraud.
One place where fraud could see an uptick is people going straight to the source and, instead of using stolen credit card information, using stolen personal information (similar to the kind taken in the T-Mobile breach) to take over accounts or open new accounts.
Another potential source of fraud, and one you have to keep in mind especially around Christmas, is online. Buying online is similar to using an old magnetic strip credit card: it’s the same information being passed to the credit card company every time. In countries where chip credit cards are already in use, online shopping fraud has seen an increase. So while you can breathe a little easier when you step into Target, don’t think that you’re necessarily any safer on Amazon.
So what does all of this mean for you? Day to day, not much; you may have to update some automatic payments and your checkouts will take a little longer. But in the long run there’s a much bigger impact on your financial security, so this is one replacement credit card you shouldn’t be upset at getting.