See How an EMV Chip Card Protects You

Introduction

EMV chip cards have been pretty standard in the US market for over a decade now. But you might be surprised to find out that their origin story began more than 20 years before that.

The “chip” on a chip card is that little rectangular metal microchip visible at one end of the card. And when the technology was new, you may have needed some coaching on the purchase process. You would likely try to swipe the magnetic stripe, and then the cashier would look at the card and ask you to insert the chip instead.

These days, chances are you automatically insert your credit card at the chip end without any discussion. But why does it matter? Why are you encouraged to “dip your chip” rather than “swipe your stripe” when it’s time to pay or use an ATM?

That all boils down to the safety and security of your cardholder data. The encryption and tokenization processes used by EMV chips are extremely secure.

And even though contactless payments are the new safe kids on the block, the near-field communication (NFC) technology that makes contactless payment possible is built into that same secure EMV chip — as long as it’s configured as a dual-interface chip, which adds contactless to the standard contact-only EMV. That gives us a third option, often just called “tap to pay.”

All of this can seem complicated, so let’s break it down and take a closer look at these game-changing microchips. Here’s how EMV chip cards work and why they’re important.

What Is EMV?

EMV stands for Europay, Mastercard, Visa — the original three developers of the technology. These founding members named the technology in 1993, and the first version of EMV chip cards came out in 1994. However, “chip and PIN” technology was being developed even before that — starting in the 1970s in France, with localized bank card rollouts in the ‘80s.

But technical compatibility ended at country borders, and we needed a worldwide system to future-proof growth. So EMV became the unified industry standard, and other stakeholders came on board to help develop the technology in the mid-1990s. Then Europay merged with Mastercard in 2002.

Today, six global entities own the chip technology and its parent company, EMVCo. Those partners are Mastercard, Visa, American Express, Discover, China UnionPay, and Japan Credit Bureau (JCB).

So even though EMV chips entered the US market in 2015, after Europay no longer existed, the name was already long baked in. And since nobody ever really calls the chips “Europay, Mastercard, Visa” anyhow, it’s kind of irrelevant.

What’s much more important is how prevalent these little metal chips have become. By the end of 2024, well over 90% of card-present transactions worldwide used EMV chips.

This technology has taken such a firm hold because it helps protect consumers against credit card fraud and identity theft in several ways.

How Do EMV Chip Cards Work?

EMV chip cards use encryption and tokenization for added layers of security.

Encryption scrambles your data to protect it in transit, like transporting important documents in a secure lockbox. So instead of just sending your raw cardmember data through the card network, the EMV microprocessor chip generates a unique transaction code (or cryptogram) for every purchase.

The card reader transmits that one-time code to the card issuer, which uses a mathematical key to match the code and then sends verification back to the vendor.

However, if an encrypted key is intercepted during transit, it can be decrypted. Just like a thief can steal your lockbox and break into it. That’s where tokenization comes in, which can’t be reverse engineered.

Tokenization generates a virtual token that serves as a digital claim check to pick up the metaphorical documents. The token is a random string of characters that looks like a credit card number, but it’s useless on its own.

A token is usually only stored with one merchant, or one platform, like your digital mobile wallet. If you have a recurring payment set up with a merchant, the tokenization system will securely retrieve and decrypt your card data every time it needs to charge you.

Modern payment systems typically use encryption and tokenization together for end-to-end security. Tokenization protects you at the point of purchase, and encryption protects you during the creditor verification process.

The whole procedure takes a few seconds, which is why contact point-of-sale terminals will often prompt you to leave your card inserted while it does its thing.

By the way, you may have noticed that key cards and employee access badges often have a similar-looking metal chip. But these are usually simple memory chips that provide limited functionality in comparison to complicated EMV microprocessor chips. It’s the same basic face, but a completely different brain.

Why Are Chips Better Than Magnetic Stripes?

Older credit cards worked through a magnetic stripe on the long side, which is also called a magstripe. That black or silver strip stored all your account information, and swiping it through a card processor would transmit the data to the machine. Credit cards generally still have a magnetic stripe, but it’s used more as a backup system.

Before chips became standard, people were often concerned about whether the magstripe would become accidentally demagnetized by letting the card get too close to a computer, smartphone, fridge magnet, wallet clasp, or even other credit cards. But the bigger concern should have been the growing trend of credit card fraud.

Card skimmers — small devices that thieves could attach to gas pumps, ATMs and checkout terminals — were able to steal your data when the card was swiped. That could easily be made into a counterfeit card, or the numbers themselves could be used for card-not-present transactions online or over the phone.

The EMV chip with its one-time code and complicated protection makes stolen data pretty much useless in future transactions. Since your virtual card data is always changing, counterfeiters can’t simply replicate your information like they could with the “static” data on a magnetic strip.

Bottom Line

Criminals tend to get more and more sophisticated over time, but so do safeguards against them. And EMV chips are among the most important modern inventions when it comes to preventing credit card fraud and data theft.

So from now on, you can remember that “dipping a chip” isn’t just about gameday snacks. It’s a safe and secure way to protect yourself when making a purchase with your credit card.