Financial fraud is a growing concern in the modern commercial market. One of the most common targets of financial fraud is theft through credit and debit cards which use magnetic strips to record the customer’s account details. The latest figures tell us that nearly $27.85 billion were lost to credit/debit card theft and these numbers are projected to reach $35.67 billion in the next five years.
One of the reasons for this rise in theft is the use of magnetic strips as a way of encoding financial information into plastic currency, which is easily stolen by skimmers. EMV chips were introduced to prevent future thefts by the same methods used to steal money from cards using magnetic strips.
What Does The Magnetic Strip Do?
People don’t pay much attention to the magnetic strips on the back of their cards, but that’s where all the sensitive financial information is stored. When you swipe your card at a POS or an ATM machine, the machines read the data encoded into the magnetic strip to process the transaction. It’s pretty easy for anyone looking to steal from you to acquire the data encoded into that strip and they don’t even need fancy technology to do it—thus the rise in theft through credit/debit cards.
How Does The EMV Chip Overcome The Loopholes?
The main difference between the EMV chip and the magnetic strip is the form of encoding used to store data in the card. The magnetic strip uses static encryption methods, which are open to any number of privacy attacks from malicious characters. A static encryption method uses the same encryption key to decode the data stored on the strip. Skimmers are used to replicate the same data on a different magnetic strip and whoever gets their hands on the strip also has their hands on your financial information.
An EMV chip on the other hand uses a dynamic encryption key that changes every time you make a transaction. The information on the card is encoded using a different encryption to make it harder for any potential skimmer to get access to the encoded information. While the magnetic strip can be decoded and replicated, there’s no possibility of that happening with the new EMV chips.
This difference in encoding processes make EMV chips a much safer option of encrypting financial information on cards compared to magnetic strips. Since the malicious financial fraudster doesn’t know the encryption key, they can’t access your financial information—and so, your bank hands you an EMV card rather than one with a magnetic strip.
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