Why Do Credit Cards Have RFID Chips?

Modern credit cards feature a small, metallic chip. This embedded component is a standard element on cards today due to its function and the technology it embodies.

Understanding Credit Card Chip Technology

The metallic chip on a credit card functions as a microcomputer, distinguishing it from older magnetic stripe cards that primarily stored data. This microcomputer encrypts and processes transaction data securely. When making a purchase, the chip actively communicates with the payment terminal, performing cryptographic functions to protect sensitive information.

Chip technology supports two primary payment methods. “Dipping” involves inserting the card into a terminal slot, where it remains for the transaction’s duration. “Tapping” uses Near Field Communication (NFC) technology. Both contact and contactless interactions leverage the chip’s processing capabilities for secure data exchange.

How Chip Technology Enhances Transaction Security

Chip technology enhances security by generating unique, dynamic data for each transaction. When a chip card is used, it creates a one-time transaction code, known as a cryptogram. This cryptogram is unique and cannot be reused.

This dynamic data generation contrasts with the static information on traditional magnetic stripes. Magnetic stripes contain unchanging card data, making them vulnerable to skimming and counterfeiting. If static data is compromised, fraudsters could create counterfeit cards or make unauthorized purchases. With a chip card, even if transaction data is intercepted, the unique cryptogram becomes invalid immediately after use, rendering the stolen information useless for subsequent fraud.

The EMV standard established protocols for this chip technology to enhance payment security and reduce fraud. The adoption of EMV chip technology has proven effective in significantly reducing card-present counterfeit fraud. Furthermore, a broader security measure called payment tokenization replaces sensitive credit card information with a unique, randomly generated token, adding another layer of protection, particularly for online transactions. The shift in liability rules also incentivized merchants to upgrade their payment systems to accept chip cards, contributing to the technology’s widespread implementation.

Using Your Chip-Enabled Credit Card

Using a chip-enabled credit card at a point-of-sale terminal is straightforward. For a “dipped” transaction, the cardholder inserts the card into the terminal slot and leaves it there until the transaction is complete. The terminal will display prompts for the cardholder to follow, which may include entering a Personal Identification Number (PIN) or providing a signature to authorize the purchase. Once approved, the terminal will indicate when the card can be removed.

For contactless or “tapped” transactions, the cardholder waves or taps their card near the payment terminal’s reader. While many modern terminals are chip-enabled, credit cards typically still retain a magnetic stripe on the back, allowing them to be swiped at older terminals that have not yet been upgraded.