July 7, 2015

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Chip and PIN vs. Chip and Signature Credit Cards

Recently, I received a new version of my credit card in the mail, even though the expiration date was two years away. I noticed this card featured a fresh design, including a small, imprinted silver square with a few black lines inside. That little square is a big deal.

We wrote on chip and PIN vs. chip and signature technology back when banks started rolling out “smart” credit cards that are more secure than traditional cards. Now that these cards are entering the mainstream, it’s worth looking at chip and PIN cards again. What can you expect as a consumer, and can they really reduce credit card identity theft?

Big Differences

As you’re aware, traditional credit cards pack your personal and financial information into the magnetic strip on the back. Your identity is supposed to be verified with a signature, but anyone who’s been to a retailer lately has probably noticed there isn’t much signature comparison going on these days.

Also, hackers can easily obtain the information within a magnetic strip with their own readers. And because the magnetic strips have the same account data for each transaction, the card can be used numerous times before being flagged for fraud.

By contrast, a chip and PIN card holds data in an integrated chip — that little box on the front — and still has a magnetic strip, but only for compatibility with older systems. That chip creates a new authentication code for every transaction, so if your card is hacked, it can only be used once.

With chip-and-PIN cards, verification is as simple as inputting the card into a newer reader and entering your PIN. That provides a much higher level of fraud protection and prevention of credit card identity theft than is available with traditional credit cards.

Smarter Security

Retailers like Target and The Home Depot have suffered high-profile data breaches, so it’s not surprising that financial institutions would accelerate the process of releasing chip and PIN cards. When looking at the advantages of chip and PIN vs. chip and signature, the heavyweight title clearly goes to the PIN contender.

Even better, there will be more security on the retailer side before long. By October 2015, retailers and financial institutions could be liable for fraudulent charges if they haven’t upgraded to the chip and PIN system. Because of that mandate, many major retailers have already made the switchover, and you can expect most — if not all — will be compliant by the fall.

So keep your eyes open for new cards in the mail, even if the expiration dates on your current ones aren’t looming. The chip and PIN vs. chip and signature shift is resulting in a much-needed added layer of security, and we hope it will significantly cut down on credit card identity theft.

Image courtesy of Flickr user frankieleon.

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