Credit card fraud is one of the most common forms of financial crimes reported on a global scale. Back in 2018, nearly $24.26 billion was lost to credit card fraud— the instances of fraud have tripled since 2014 to reach as high as 160,000 reports throughout the US alone. Additionally, the increasing use of digitized payment methods and online card payments has put consumers at higher risk of financial fraud than any other.
In light of these developments, financial institutions across the world decided to improve security measures built into credit/debit cards to clamp down on instances of financial fraud. As of 2015, it was legally mandated that all service providers us POS that accommodate EMV chip cards throughout the United States. Similar steps were taken across the global financial and retail industry.
This raises the question of what’s wrong with old chip-less cards and how does EMV chip technology overcome the limitations of the older cards.
Magnetic Strips on Debit/Credit Cards
Back in the day, most credit and debit cards had magnetic strips which held most of the users’ financial data. These strips were encoded with a static encryption key, which only the card readers at the POS could decode and read to process the financial transactions.
Many fraudsters realized that they could install skimmers on card readers, which could record the data contained in that magnetic strip and use it for financial transactions themselves. It was relatively easier for skimmers to break the encryption keys on a card’s magnetic strips to basically put all of your finances in the hands of the fraudster.
EMV Chip Cards Are Safer
If you’ve used an EMV chip card recently, you must have noticed that it asks you for a PIN during for each transaction made. That’s one way that an EMV chip card improved on the security features of your traditional magnetic strip cards. The other way EMV chip cards are safer is the use of a dynamic encryption key that changes each time you conduct a transaction.
So let’s say you go on a shopping spree, where you visit ten different stores and used your card each time you made a purchase. With each successive transaction, the chip generates a different encryption key that is rendered useless the moment it passes through a card reader.
Basically, no skimmer can decode that information—because the encryption keeps changing with each transaction.
This new dynamic encryption method is much more secure because it makes skimming obsolete. Since that’s one of the most common methods of credit card fraud in the industry, many fraudsters are likely stumped at how to overcome this challenge.
If you’re looking to adopt digital payment methods at your retail outlets, get in touch with UIC today. We’re leading payment platform developers, offering a wide range of products, including semi-integrated payment devices, mobile payment devices and secure payment software development. Speak with us today for more information.