What Is Chip and PIN Authentication?

In Europe, chip-and-PIN credit cards are the standard -- for roughly 10 years now.

When I did see card readers that required you to stick your credit card into them before sitting and staring at the screen for what seemed like a very long time, I didn’t get it. In fact, I actively avoided it for a while.

I felt this way until I understood the actual point of chip-and-PIN authentication: it’s to keep your credit card more secure and safe from fraud and data breaches.

Quick answer: Chip and PIN authentication is a security protocol available through a chip embedded in a credit card. The chip scrambles transaction data while also requiring a PIN to authorize the transaction.

But maybe you still feel like I did. You don’t know why all your credit card companies sent you new credit cards with fancy little computer chips embedded on the front.

If you’re not sure what chip-and-PIN authentication is, read on and learn why this is a beneficial security measure that will help keep your information safer than cards without this technology.

What is it and How Does it Work?

Credit cards featuring chip-and-PIN authentication look almost identical to cards without it.

The “chip” in chip-and-PIN refers to the microprocessing computer chip embedded into the card.

Again, this is a security feature designed to safeguard your information and prevent credit card fraud. There are several ways the chip (and PIN) works to achieve this goal.

The idea behind chip-and-PIN authentication started with Europay, MasterCard, and VISA -- and for that reason, credit cards with the technology are also called EMV-chip cards. Chip-and-PIN authentication is one way the tech works to protect you.

The microprocessing chip both stores your data -- and does a better job protecting it than cards without the feature. It’s a much more complicated piece of technology that’s harder to steal from or manipulate.

The “PIN” in the phrase refers to a 4-digit PIN you can set up for your credit card that is required when you go to make a purchase. This works just like your debit card PIN.

Other EMV cards feature the chip, but don’t require a PIN. These are often called chip-and-signature cards, and are more similar to the traditional credit card with the magnetic strip.

Why Ditch the Strip for a Chip?

Before EMV cards became the standard issue for credit cardholders, we used cards that stored data on a magnetic strip.

That’s the solid bar that runs across the back of your card. It’s what you swiped through card readers to make your purchase.

If you, like me, thought simply swiping your card was easier than jamming it into one of the chip-and-PIN card readers, you might be surprised to know that the magnetic strip used the same technology as cassette players to record information.

Not exactly the security standard I want when it comes to my credit card. This is why you see more cards featuring chips, even though the chips are more expensive to produce than the older, less secure cards without them.

These magnetic strips simply stored information about your card and line of credit that the card reader could, well, read. The information was static, making it easy to copy and steal with devices like skimmers.

And credit card skimmers are easy to find and cheap to purchase. The barrier to entry to commit credit card fraud is, unfortunately, pretty low with these devices.

How EMV Cards Protect You and Your Information

Enter the chip in credit cards to solve this problem. To understand why you see more credit card companies making the switch to chip-and-PIN authentication for security purposes, you need to know how the chips themselves work.

Whereas information on a magnetic strip is static, information stored on the microprocessor chip is dynamic. This means it’s constantly changing and capable of communicating data instead of just storing it.

In the past, card readers simply took in the information on your credit card via the magnetic strip. But with chip cards, the reader interacts with the card via the chip.

The chip produces a transaction number each time you insert your card at a machine to pay.

If the card doesn’t generate a unique transaction ID, payment won’t work -- which means thieves and people committing fraud can’t create and use a fake card just using the information from your real one.

Today, most credit cards in the U.S. have EMV chips embedded in them -- especially travel credit cards that are likely to be used internationally.

Making credit card fraud more difficult

Thieves need way more than a skimmer to take your information.

Someone stealing data from a chip-and-PIN card requires more expertise, ability to hack complicated systems, and equipment that’s much more complicated than other devices used to steal credit card info from the magnetic strip.

The way the chip generates a unique code for each transaction also means your information is safe in case a store you shopped at suffers from a hack.

These codes can’t be used again, so they’re useless to thieves who try and steal data based on the store’s past transactions.

In addition, it’s hard to create counterfeit copies of cards that require chip-and-PIN authentication. (This was much easier to do when cards just featured the magnetic strip.)

In fact, it’s nearly impossible to make an exact copy of the chip in your credit card.

These measures don’t mean you’ll never be a victim of fraud if your card is stolen or someone gets hold of your personal information via some channel. But chip-and-PIN authentication does a lot more than credit cards have done in the past to protect consumers.

Don’t Forget About the PIN

The chip does the heavy lifting when it comes to preventing data breaches and theft via devices like credit card skimmers. But the PIN plays an important role, too.

The “PIN” part of chip-and-PIN is an added security measure. The chip better protects the information stored in your card. But that doesn’t do much to stop anyone from using your card if they take it from you.

Remember, that PIN works like your debit card. You’re required to enter it when you go to make a purchase. That helps prevent people from stealing your physical card and using it to rack up fraudulent charges.

If they don’t have the PIN, they probably can’t use the card -- even if they have the card in hand. When given the option, make sure you opt for chip-and-PIN cards over chip-and-signature cards. The PIN is what stops people who may take your actual card and use it without your authorization.

Chip-and-PIN Provides More Protection for You and Your Credit

I still want to go up to a cash register and swipe my card at the card reader, even though more and more stores require you to insert your card.

But at least now, I’m not so irritated when the machine wants the chip and not the magnetic strip.

The technology isn’t perfect and chip-and-PIN authentication doesn’t provide a guaranteed way to stop fraud. And for us in the States, the biggest issue is that the chip-and-PIN process still isn’t the standard.

While it’s available, most credit card companies switched to chip-and-signature cards instead of chip-and-PIN. These are the ones that feature the same microprocessor, so your data is just as safe.

But you lose out on the added protection of requiring a PIN only you know to authorize charges. Still, chip-and-PIN (and even-chip and-signature) authentication represent a step forward in credit card security.

Inserting my card instead of swiping it so the machine can read the chip is tiny change in the way I make purchases. In exchange, I get a lot more security for my credit card. It’s well worth embracing this new technology that does a better job of keeping our information safe.