Definition of smart card and PIN
What is a smart card and PIN code?
Unlike previous cards that used a magnetic stripe containing cardholder information, chip and PIN cards contain a square-shaped microchip that generates and stores unique information for each transaction. As such, chip and PIN cards are less sensitive to fraud than previous generations of credit cards.
Key points to remember
- Chip and PIN cards are credit cards with enhanced security features.
- A smart card and signature uses a data microchip and requires consumers to provide a signature to complete transactions.
- Unlike the older model of magnetic stripe cards, chip and PIN cards do not require customers to sign their receipts.
- Instead, chip and PIN cardholders simply enter a PIN code to verify purchases, while a small microchip built into the card generates and records unique transaction information.
How Chip and PIN Cards Work
From the customer’s point of view, using a chip and PIN card is very similar to using older magnetic stripe cards. When making a purchase, chip and PIN cardholders simply insert the card into the point of sale (POS) terminal, so that the electronic chip can be read by the machine. The POS then invites them to enter their PIN code, in order to authorize the transaction.
In contrast, magnetic stripe cardholders must swipe their cards through the point-of-sale terminal and then sign a printed receipt. Although this old system was also relatively fast, it had some major drawbacks. On the one hand, magnetic stripe cards force merchants to keep large amounts of paper documents, which can easily get lost or fade over time. Additionally, employees often fail to verify that the signature provided by the customer matches the signature on the back of their card, making it easy for a dishonest cardholder to produce a false signature when using the credit card. from someone else.
Chip and PIN cards improve on both of these limitations. Although they are the same size and shape as magnetic stripe cards, they overcome the need for physical records as the POS system can electronically detect whether a correct PIN has been provided by the customer. Using a PIN code also eliminates the need for employees to verify that the signature matches the one on the card, while the integrated chip reduces the risk of counterfeit by generating unique transaction codes each time the card is used.
Thanks to these measures, chip and PIN cards reduce the risk of credit card theft. After all, potential thieves can’t just authorize transactions using fake signatures. Instead, they would need to know the user’s real PIN, which is difficult given that the real user can simply change their PIN once they find out that their credit card has been stolen.
Real example of a smart card and PIN code
Michael works in a small retail store, which recently upgraded its point of sale system. In the past, it could only accept payments in cash or by magnetic stripe credit card. This meant that Michael would need to get his clients’ signatures and keep those records in order to verify his transactions later. While this method worked reasonably well, it was time consuming and prone to inaccuracies. After all, bulk receipts tend to get lost, and their printed data can easily fade over time.
In recent years, customers have started using chip and PIN cards and have been surprised to learn that they still have to sign their receipts. In response, Michael recommended that his employer upgrade their point of sale system to one capable of accepting these new cards. In doing so, he pointed out that the new chip-and-PIN system would reduce the time it takes to verify past transactions, eliminate the risk of receipts being lost or faded, and help protect customers from credit card fraud.