How Does A Chip Card Work ?


Fincrif India

Oct 3

01:39 AM

The initial chip-card specification, announced in 1996, was developed by three companies: Europay, Mastercard, and Visa, and is referred to as EMV. To stop the growing losses brought on by the usage of credit cards that were stolen or fake, EMV was developed.

Electronic payments' foreseeable future is evolving. The development of new technology and industry standards that provide safer electronic payments, protecting businesses and their clients, is a continuing effort on the part of financial institutions, card brand networks, merchants, payment processors, and others.

A prime illustration of how these coordinated efforts might be successful is chip card technology, sometimes referred to as chip-and-PIN or EMV. A safe way to store and transmit private credit card and debit card account information between businesses and their customers is through chip-and-PIN technology.

We'll examine how chip cards safeguard organisations by lowering the danger of specific types of payment fraud in this essay on payment security.

What is an EMV Chip Card? 

The initial chip-card specification, announced in 1996, was developed by three companies: Europay, Mastercard, and Visa, and is referred to as EMV. To stop the growing losses brought on by the usage of credit cards that were stolen or fake, EMV was developed.

It is very difficult to replicate EMV technology because of the inbuilt security chip, which stores encrypted data. In order to prevent data from ever being compromised, the saved transaction codes are dynamic, meaning they constantly change and are never used twice. Even if a hacker is successful in obtaining the authentication code, it will not be useful for upcoming transactions and will make it very difficult to duplicate cards in order to engage in card fraud.

EMV chip cards are currently the industry standard for card security because they are efficient in lowering card-present counterfeit fraud in all areas where the technology has replaced magnetic stripes. A billion or so more EMV cards were added in 2020 alone, according to EMVCo data, bringing the total number of installed EMV cards to around 11 billion worldwide.

How does an EMV Chip Card Work? 

When a card is placed into a slot on an EMV-enabled terminal, the information on the integrated chip is read and verified. Card data is then processed for payment authorization just like when using a magnetic stripe, with the main distinction being that a chip card creates a one-time code for every transaction while a standard magnetic stripe card does not.

An EMV card can also be used to make contactless purchases. The enabled card can be used to make a purchase by tapping, waving or holding it close to a payment terminal using near field communication (NFC).

How are EMV chip card transactions processed?

Chip cards can be used with payment acceptance equipment that has been approved as EMV chip-and-PIN compatible. The consumer inserts the payment card into the terminal to complete the purchase. To authenticate the transaction, a communication channel is established between the chip and the card reader.

Following the card insertion, the consumer follows the on-screen instructions to confirm the transaction. Depending on the verification technique that the card-issuing bank has set, this procedure may change. A PIN must be entered by the customer to complete a chip-and-PIN transaction, which has essentially supplanted chip-and-signature systems.

Online processing starts after terminal authentication measures for cardholders are finished. The card issuer may carry out additional authentication as well as other security and fraud checks before sending approval or refusal codes back to the EMV terminal.

Visit the EMVCo website for additional information on EMV requirements, including specific transaction data for mobile, Secure Remote Commerce, contact, and contactless transactions.

Can Chip Card Fraud Proof 

No. It has been demonstrated that EMV chip-and-PIN technology reduces card fraud and theft losses. Having said that, chip card technology is not a panacea. There is currently no one technology, or even set of technologies, that can guarantee payments are always fraud-free.

Card-present fraud has been greatly decreased, though, thanks to chip cards. According to a Visa analysis from December 2018, card-present fraud losses from retailers who updated to EMV have decreased by 80% in the three years since the EMV liability shift.

Utilising a combination of technologies, best practises, and partnerships will help you protect your company and lower the likelihood that losses from credit card and other payment fraud will occur. Together, you and your payment processor may create a thorough plan for payment security that helps lower risks and increases your ability to keep more of your earnings.


A more secure data-storage method takes the place of the magnetic stripe on the back of the card with EMV chips, which are common in many new credit and debit cards. Nowadays, many businesses demand that customers use the EMV chip to pay rather than their card's magnetic stripe.

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