What Does an EMV Chip do exactly?

When a chip appeared on credit cards consumers and merchants were skeptical just how that would make transactions more secure. Some people are still skeptical. Most of it comes from a lack of understanding of just how the chip works. So today we are going to try to explain just what the chip does.

The Chip

The chip that is embedded on a credit card functions as a mini processor and transmitter. With every transaction that is completed this processor creates a new transaction code or token that is unique to that transaction and encodes the information for transmission. When the card is dipped the terminal provides the power for the chip to work since the chip has to remain in contact with the terminal throughout the entire transaction, which has been a major concern as a transaction can take a seemingly long time to complete.

Tokens

No two tokens are ever the same so if someone were to gain access to the transaction information it would be all but useless to them. This differs from the magnetic strip since the information is not encrypted making it easy to copy and not very secure. The chip allows the card and the POS terminal to talk to each other to authenticate the transaction whereas a magnetic strip simply tells the terminal the number and expiration date.

Before merchants only needed the card number and expiration date to complete a transaction. To authenticate a transaction only a limited set of numbers were used, which made it much easier for a thief to duplicate a card if they were able to get hold of that information.

Offline Payment Processing

When it comes to offline payment processing the chip tells the terminal that the card is authentic and it allows for a transaction to be processed without any information changing hands. This gives greater security and greater flexibility so merchants that cannot connect to the Internet or have a spotty connection can still take payments in this form. This has been a great feature if you take your wares to festivals or markets or if you do on-site service.

By now most consumers have a chip card in their wallet and most merchants are accepting chip cards. Three and a half years after the liability shift it has seemingly finally become accepted by the public, even if they do not understand what exactly it does. If you have not upgraded your POS terminal yet you need to. Not only has the liability shift passed but the magnetic strip’s days are numbered. If you need to upgrade don’t wait, give JLE Business Consultants a call and we can help you out.