Millions of U.S. households have received new credit and debit cards in the mail over the past several months. If you haven’t already received yours, you will. These new cards come with an embedded computer chip that adds extra security to your card purchases. Not sure if you have one of these new chip cards? The chip is a small, metallic- looking square object embedded in the front of your card.
Eventually this chip will replace the magnetic stripe that we are accustomed to seeing on the back of all of our credit and debit cards. Until then, these new cards will have both the chip and the stripe. A primary reason that the new cards still have the magnetic stripe on the back is that not all retailers have updated their card readers for the new chip technology. Thus, even if you have a new chip card, you may still have to swipe your card the “old fashioned way.” What if your retailer has the updated card reader and you have a chip card? Instead of swiping the card, you insert the card into the reader, similar to how you would insert your debit card into an ATM machine. Once the transaction has been approved, the machine will prompt you to take the card out. This will take several seconds.
Why is the “chip” better than the “stripe”?
The chip technology allows for a safer transaction. The chip creates a unique code for every transaction. If someone were able to copy the information from your card, they would only have copied the latest transaction code. When someone then tries to use this copied information, the old code would be rejected and the transaction would not go through. The magnetic stripe, on the other hand, does not have any information that changes between transactions. If someone was able to copy the information from this stripe, they would be free to make purchases until the card owner contacted his or her card company or fraudulent purchases were flagged.
While the new chip technology is safer than the old magnetic stripe, it is not perfect. The added safety is only in place if you insert your new card into an appropriate card reader. If you make an online purchase or over the phone purchase, there is no added security. Similarly, if someone has your credit card, there is nothing in place to prevent the use of your card. Eventually, U.S banks are likely to move to “Chip and Pin” technology like many European banks have. Chip and Pin would require you to insert your chip card and also enter a pin (just like we currently do when withdrawing money with a debit card). The pin feature would prevent someone from using a stolen card. Unfortunately, we are not there yet.
Your new Chip card may or may not have the same account number on the card. However, the 3-digit security code on the back of a credit card as well as the expiration date has likely changed. For these reasons, you will want to confirm and update any automatic payments that you have established.
When you get your new Chip card, you will likely have to activate it by calling a 1-800 number which will be on a sticker on the back of your new card. Once your new card is activated, shred and dispose of your old card. Never give out personal and financial information to someone who calls you claiming to be from your financial institution. Phishing scams have been on the rise surrounding these new cards and unsuspecting individuals have been targeted. If someone does call you and asks for this information, hang-up and call the 1-800 number on the back of your card to confirm that you are speaking with your financial institution.
Travis Mountain is an Assistant Professor at Virginia Tech University. Mountain’s area of concentration as an Extension specialist is the financial and economic well-being of the households and communities of Virginia.