What’s the Difference Between Magnetic Strip and Chip Credit Cards?

For decades, Americans carried credit cards with a magnetic strip, but in 2015, credit card issuers began issuing a credit card with an EMV chip.

Even though they have been in rotation for a few years, some people are still wondering, what’s the difference between magnetic strip and chip credit cards?

With a magnetic strip credit card, account information is stored in the magnetic strip on the back of the card. After you swipe your card, the payment terminal uses the card information to send an authorization request to the acquiring bank and the credit card’s issuing bank. Assuming there is no problem authorizing the transaction on either end, the payment will be completed.

One of the issues with magnetic strip cards is that your card information is stored in the stripe and transmitted in-full, which means fraudsters can more easily steal your account information if they are able to hack into the payment terminal. Criminals are routinely able to hack into payment systems, so the threat is real. This is the main reason card issuers switched to EMV chip credit cards.

With chip credit cards, the transaction is processed with information found on the computer chip, but not your unique credit card information. After you insert the card into the terminal, the payment system verifies your issuing bank from information on the computer chip. PIN details are verified, and the transaction is sent with a public token. This token changes after every transaction, so if a thief steals information from the payment terminal, they cannot use that token to process future transactions fraudulently.

EMV chip credit cards can also process transactions my tapping the payment terminal with your card. The transaction is processed using near-field communication technology, which can store more data than previous versions of contactless cards that used RFID. This makes it harder for the card to be forged.

So the major difference between chip cards and magnetic strip credit cards is security. Since EMV cards use a dynamic token to process transactions, your card data is much safer from would-be thieves.