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Why there's a chip in your new credit and debit cards

Why there's a chip in your new credit and debit cards
© Johannes Gerhardus Swanepoel | Dreamstime.com

Over the last couple of years, you have most likely seen this major addition to your credit cards and debit cards. You might have suddenly had your bank re-issue every single one, and the new ones have a shiny little square. And when you use them at certain stores, you have to insert your card into the reader instead of swiping it.

Those little shiny squares are called EMV chips and they're already on almost 400 million cards in the United States. That means, currently, three out of four cards in the U.S. are already chip-enabled.

Chip-enabled cards are already the standard in most of the world, with big-name financial institutions behind them, including American Express, Discover, JCB, MasterCard, UnionPay and Visa. (EMV stands for Europay, MasterCard, Visa.)

These companies have a lot of incentive to do a better job securing your card transactions: money. In 2016 alone, experts projected that $4 billion in the United States will be stolen by criminals duplicating the information on the standard magnetic strip found on the back of every card.

Plus, some of the worst credit card crimes in recent years exploited the payment machines where you swipe your card. You remember when Target was hacked a few years back? Criminals hacked the in-store credit card readers to steal information from up to 70 million people. Same with The Home Depot where criminals used that same method over a five-month stretch in 2014 to compromise credit card information from 56 million people.

EMV chips are intended to make it a lot tougher for criminals to steal your information, and to exploit retailers' payment systems. Here's how it works, and why it still isn't as safe as you might hope.

Next page: Why EMV chips are more secure than magnetic stripes
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