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How Does a Chip on a Credit Card Work?

In recent years, data breaches have made customers hesitant to use their credit cards. Banks have met customer demands for heightened security when using their credit cards. Most of the major banking institutions and credit card companies have adopted this technology: 

  • S. Bank
  • Wells Fargo
  • Bank of America
  • Chase
  • Discover
  • Capital One

Most businesses have cooperated by integrating a coordinating chip reader. The Clover POS, for example, is a chip ready system many businesses use. Accepting chip card payments is a cost-effective transition to make, but how do the cards actually work?

Where Is the Chip?

Chips on EMV cards, or chip cards, are located in the top left corner. When a customer pays using this type of card, they insert the chip end into a slot on the reader. Once the transaction is complete, the customer will sign and remove the card. In Europe, most companies use a pin in place of a signature, but the United States generally does not. 

What Does the Chip Do?

The chip acts almost like a computer. When the card is sitting in your wallet, it’s essentially unplugged. Once it’s inserted into a terminal, the card reader begins to communicate with the chip in order to process the transaction. An encryption process protects data from hackers, and a unique transaction ID ensures the information cannot be reused in a future transaction. This makes stealing this information pretty pointless for thieves.

Do Chip Cards Need Magnetic Strips?

Most chip cards have both the chip and a magnetic strip. The chip is able to process payment without the strip, but because many businesses are not chip ready, the magnetic strip is there so customers still have that option. Perhaps someday that magnetic strip will disappear.

Understanding how chip cards work makes it easy to see the benefits of optimizing your business for chip-card payments. Merchant Account Solutions can give you an instant quote through the website or by calling 866-698-9246.

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