Chip cards, also commonly referred to as smart cards, memory cards, or integrated circuit cards (ICC), are the newest thing to hit the financial market. Chip cards look and feel just like a traditional credit cards, but instead of the strip on the back, each card has a small microchip installed with secured information for not only financial transactions, but also to store private data like medical records and business data. While chip cards have been used in Europe for several years now, they have yet to reach the United States. However MasterCard and Visa plan to introduce the chip cards to consumers in the U.S. by April 2013.
What are Chip Cards?
Chip cards get their name from what is called the “Chip and PIN” technology that they are made with. Unlike regular credit cards that use a magnetic strip to complete financial transactions, chip cards have a security chip embedded inside and the card user will enter a 4-digit PIN to access it. Chip cards provide a multitude of benefits both to the consumer and the business owner as they do more than just complete financial transactions. These cards will also store other data such as secure and private information about the card user and important records such as employment or medical records.
How do chip cards work?
Each chip card or smart card includes a microchip with information, also called a microprocessor. This microprocessor is embedded into the card, with a gold contact pad over it to protect it. The gold contact pad replaces the magnetic strip typically on the back of a credit card. Currently, there are two different types of chip cards that work in slightly different ways: contact chip cards and contactless chip cards, both of which require a 4-digit PIN.
Contact chip cards are inserted into a chip card reader similar to a credit card reader. The chip card reader will be able to read the information in the embedded microprocessor and be able to transmit data, such as to complete a financial transaction by verifying that the card user has sufficient funds to cover the transaction. Contactless chip cards only require the card to be within a close distance of the chip card reader, usually no more than three inches away. This allows for quicker processing time when reading the embedded chip.
How can small businesses benefit by chip cards?
Chip cards offer an array of benefits to small businesses, including optimum security protection. One of the primary benefits of chip cards as opposed to regular magnetic strip cards is that chip cards allow you to store a larger volume of data on the chip. While magnetic strip technology only allows basic banking information and personal information, a chip card can store significantly more data including medical records, banking and personal information, driver’s license information, club memberships, and more. Small businesses can use these cards for storing private data on chip cards to be used for various areas of business.
Security is also more substantial on a chip card as it is more difficult for individuals to commit fraud with the cards and steal data from the chip cards. There is also an added security measure for chip cards which is voluntary; card users can have the chip card programmed to work only with another programmed device, such as a mobile phone, where the card will only work if the phone is within close proximity.
What are the risks of chip cards?
As with any type of technology, chip cards are advanced, but still have their own set of risks. Malware can pose a problem with the cards when the card reader that is used contains some sort of malware which can affect the card’s chip after it has been read. This can ultimately affect the data stored on the card as well as infecting the chip itself. Another risk is possible theft of the card and an individual being able to crack the PIN code and access the information. Because more information is stored on a chip card, it becomes more of a security risk.
Chip and PIN technology is the future of credit card and data storage and starting in 2013 is expected to replace the majority of magnetic stripe cards. Along with the benefits of using a chip card, small businesses will be able to take advantage of this advanced technology.