Magnetic Stripe Cards vs Chip Cards

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What is a Magnetic Stripe Card?  

Magnetic stripe cards are cards that use magnetic labels to transmit financial information to the card issuer. This happens when the card is swiped through a magnetic stripe card reader to authorize a purchase. These cards are typically 2-inch by 3-inch plastic credit or debit cards, although magnetic stripes are used on many kinds of cards. 

For payment cards, the information embedded in the magnetic stripe card includes the cardholder’s information like name, address, account number, and account balances. Magnetic card technology can also store security functions. This information, when used with a point-of-sale (POS) system, transmits the relevant data to the card issuer to approve or deny transactions.


How Do Magnetic Stripe Cards Work?  

Magnetic stripe cards are made up of a magnetic strip of tape attached to a plastic card for card-present transactions. The magnetic strip on the card includes three “tracks,” horizontally stacked across the length of the card. Each track holds distinct types and amounts of data.  

Credit cards primarily use the first two tracks to store cardholder’s information like the account number, name, expiration date, service code, and card verification code. Track three is rarely used, but when it is used it stores PINs, country codes, currency units, the amount authorized, or account restrictions. 

Magnetic stripe cards can include bank cards, credit cards, ATM cards, employee ID cards, hotel key cards, library cards, loyalty cards, membership cards, gift cards, and public transit cards. 


What is a Chip Card?  

EMV chip cards are cards that use chips to transmit financial information to financial institutions when inserted into a card reader. From a consumer perspective, this is the difference between swiping their card or inserting their card at the POS (point of sale). However, the difference between magnetic stripe cards and chip cards goes beyond the method that customers use to process a transaction. These EMV chips were created by Europay, Mastercard, and Visa (hence the acronym EMV) to create a more secure payment experience.  


How do Credit Card Chips Work? 

EMV chip cards are much more secure than magnetic stripe cards. While magnetic chips retain static information, EMV chips store a digital code that changes with every purchase. This one-time digital signature is hard to copy and makes it much more difficult for fraudsters to steal data from a chip card. 

EMV chip cards include multiple types of payment and credit cards, government ID cards, public transit cards, and more. 


Chip Card vs Magnetic Stripe Card Security  

Magnetic stripe cards have a few advantages, including the fact that their codes can be changed with manufacturer reprogramming. They easily integrate text and images and have a wide range of uses, including many identification cards. However, the magnetic stripe card comes with more security risks than an EMV chip card. 

Magnetic stripe cards hold static information in a magnetic field. This static information is easier for fraudsters to lift and turn into cloned cards. Fraudsters can, and do, create machines called skimmers that can read magnetic stripe cards easily. These machines are easy to construct and cost fraudsters as little as $20 to construct and install. 

EMV chip technology, on the other hand, makes it extremely difficult for fraudsters to create a cloned card. The data on the chip card is constantly changing, which makes it hard to extract. For a fraudster to extract cardholder data, they would need costly equipment that could manipulate the physical chip circuit. This equipment can cost over a thousand dollars, which is a prohibitive price for many thieves.  

Additionally, many chip cards require PIN entry for each subsequent transaction. This must be entered while the card is still in the machine, which provides an additional challenge for scammers.  

Although EMV chip cards are becoming increasingly standard, especially in Europe, some United States retailers only accept swipe cards. This can lead chip cards to experience the vulnerabilities of magnetic stripe cards for certain transactions.  


How to Spot a Magnetic Strip Card Skimmer  

Whether you are a consumer or a retailer, it is important to be able to spot “skimmers,” devices that steal magnetic stripe card information. Keep a look out for “card readers” that look different than the card readers you are used to, especially at ATMs or gas stations. Skimmers are often larger than a typical card reader, as they can be placed over a legitimate card reader.  

Even when using a chip card, there is the potential to run into a card “shimmer,” which has been designed to capture chip card information. These thin devices are entered into a card reader and are invisible from the inside. The security features of an EMV chip would limit the information an attacker would receive. The fraudster would be unable to duplicate the EMV chip, although they could use the information to create counterfeit cards with a magnetic stripe. 

In general, avoid payments in out-of-the-way places, like dimly lit gas pumps or ATMs, away from the flow of traffic. This is the best place for attackers to install skimmers or shimmers. Check card reader construction no card reader should have bubbles of glue, protruding casing, or unstable installation. And, whenever possible, use the chip instead of the magnetic stripe, even if your card offers both options.  

When it comes to security risks, chip cards are superior to magnetic strip cards. However, chip cards have not been standardized yet, leaving many cardholders open to the risk of their data being stolen by fraudsters. Magnetic stripe cards are quickly becoming a thing of the past, but they are still used widely enough to pose a threat to businesses that process magnetic stripe card payments.  

It is important to be aware of how fraudsters try to steal data. As a consumer, be aware of the risks of magnetic stripe card transactions. If you are one of the few retailers not offering chip transactions, understand the potential ramifications credit card fraud may have for your customers and your business.  


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