Magnetic Stripe Card Vs Chip Card

By Neha Goyal
  | Published: 07 August 2020 | Last Updated On: 12 February 2021

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The magnetic strip credit card has been standard for many years, but now, a new credit card standard is taking over the market across the world that is none other than chip card which has the significant benefit of providing enhanced security during transactions. But what’s the main difference between a magnetic stripe card & chip card and which one is better?

In this article, we are going to look at the main differences between these two so that you can decide which one is better for you.

Let’s dig in.

What is Magnetic Stripe Card?

Magnetic stripe cards are traditional credit cards that are also known as swipe cards. As its name suggests, it contains a magnetic stripe that is generally found on the back of cards like bank cards, identity cards, driver’s license, and much more.

Until a few years ago, almost each credit card transaction was made with a magnetic stripe reader. The sole purpose of the magnetic stripe is to store & communicate data from your card to the transaction terminal when you make any transaction using that card. Moreover, the magnetic stripe stores the data such as your full name, card number, card’s expiration date, & the country code of your card’s origin. It can contain a maximum of 60 characters magnetically.  Well, the transaction process is quite simple and straightforward and it goes like this:

  • You swipe the card.
  • The transaction terminal sends an authorization request (that includes the customer’s data of card) to your card’s bank.
  • The transaction terminal sends an authorization request to the issuing bank (Mastercard, visa, etc.)
  • The transaction terminal sends an authorization response from the acquiring bank back to the terminal.
  • If all the requests for authorization are approved, the transaction completes.

That’s quite simple, right?

But the main problem is that there is no significant system in place in order to individualize these magnetic stripe transactions. All these transactions are bulked together. That means if someone can steal the credit card information during a magnetic stripe transaction, then they can also use your credit card information for future transactions which is not safe at all.

This is a big problem with the magnetic stripe transaction. But thankfully, the chip card has solved this issue.

Yes, you read that right. Let’s know about the chip card in detail.

What is a Chip Card?

The Chip Card looks and functions just like the magnetic stripe cards but it is way more protective and intricate than those cards and also it excludes the way we interact with the transaction terminal.

Sometimes, they are also known as EMV chip cards, with EMV denoting the developers of the chip i.e. Visa and Mastercard.

EMV chip cards work by embedding an actual computer chip into the ID card instead of embedding magnetic stripe. This small computer chip is placed on the top part of credit cards in order to communicate with transaction terminals. These computer chips enable a much more secure and intricate transaction process to take place. Well, the transaction process goes like this:

  • The card is inserted into the transaction terminal.
  • The terminal makes contact with the computer chip that is embedded inside the card through pins.
  • Chip is enabled; terminal verifies the bank from the chip placed on the top of the card.
  • Computer chip also verifies the details of PIN.
  • Terminal signs transaction with the public key given from chip.
  • Information is sent to the issuer for official authorization.
  • And then, the transaction is completed successfully.

How is Chip Card better from a Magnetic Stripe Card?

The key difference between magnetic stripe cards and chip cards is that chip cards are more secured and protected. As discussed above, magnetic stripe card readers follow a simple process. If someone has access to the stored data in that magnetic stripe then they can easily replicate it again and again. Magnetic stripe card readers do not have that much level of protection. However, chip cards offer a higher level of data encryption.

Rather than utilizing magnetic stripe, chip cards use an actual computer chip in order to interface with the terminal. This makes it quite difficult or almost impossible for someone to steal card information. In addition to this, it is much easier for card algorithms to prevent fraudulent transactions in their tracks.

Although, both magnetic stripe cards and chip cards work for processing transactions. But in such modern times where credit card theft and fraud are becoming common with each passing day, going for more safe and secure option definitely makes a sense.