How Chip Cards Work

When inserted into a terminal, a chip card generates a unique, one-time code needed for the transaction to be approved. Because this code changes with every transaction, even if the card data is stolen, the information can’t be used to create counterfeit cards because the stolen code would have already “expired.” This feature makes EMV chip card data a less attractive target for criminals to steal. According to a report, counterfeit fraud in countries such as Australia, Canada and the U.K. decreased by 50-75 percent after merchants and financial institutions adopted chip technology.

Credit card issuers have until October to change their dated, vulnerable magnetic strip technology. Visa, MasterCard, Discover, American Express and their banking partners have set a government-enforced deadline of Oct. 15 for a “liability shift” that, for the first time, would make merchants liable for any fraudulent charges resulting from using point-of-service readers that can't read so-called chip-and-PIN EMV cards. The issuers have been implementing the technology, but it's still up to companies to implement it or be held responsible for fraud resulting from continue use of magnetic strips.

Ideally, a shopper would simply slide the chip end of their card into a slot at the bottom of a checkout card reader, enter their personal identification number and be done with the transaction. But since new chip-carrying cards are making their way slowly into consumers' hands, even new card readers have been reduced to slightly upgraded versions of the technology they're replacing.

When you do see a retailer that has installed a chip-enabled terminal, they often aren’t yet activated, so if you stick your chip card in the slot, nothing will happen. Getting those terminals fully working and getting employees trained up to know how to use them and guide customers through using them is all part of the transition process.