How Do Chip-and-Pin Credit Cards Work?

A chip-and-PIN card is more secure, but these cards aren’t as common in the U.S.

Man paying with chip-and-pin credit card
Updated May 13, 2024
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Life can get complicated when it comes to picking the best credit cards — especially if you travel often and need a card that works just as well abroad as it does in the United States.

One reason it can be so hard to find the best travel credit card is because one of the most common types of credit cards used overseas is not found many places in the U.S. — chip-and-PIN cards are surprisingly hard to find stateside.  

While most credit cards issued in the U.S. today are chip cards, chip-and-signature cards are far more common in this country than chip-and-PIN cards. While the difference may sound like a random piece of credit card trivia you don’t really need to understand, the reality is that there are big differences between chip-and-signature vs chip-and-PIN.

This guide to chip-and-PIN credit cards will help you get answers to key questions, including how chip-and-PIN cards work, why you might want a chip-and-PIN card if you’re traveling internationally, and what could happen if you go abroad without a chip-and-PIN card.

What are chip cards?

To understand chip cards, it’s essential to understand how credit card information is stored on a card.

Starting in the 1960s, magnetic strips were used to store credit card details, using a technology similar to cassette tapes. The problem is, all the data stored on the magnetic strip was static, so it stayed the same and never changed. This made it pretty easy to counterfeit magnetic strip cards, increasing the risk of fraud.

Fortunately, thanks to technological advancements, there’s a new way to store info on credit cards that’s more secure: microchips. Chips can be embedded inside of credit cards to store data, and they are much harder to copy than magnetic strips.

Of course, these chips need to be deciphered by card readers. To make sure chips in credit cards could actually be read by different card readers across the world, a global standard for chip technology was developed by Europay, Mastercard, and Visa. Chips that meet this global standard are called EMV chips, named after the developers.

In simple terms, chip cards are credit cards that contain an embedded EMV chip which complies with global standards and contains credit card data.

Why are chip cards safer?

Chip cards are safer that magnetic strip cards because:

  • Data is encrypted. This means it’s coded to make counterfeiting much more difficult than counterfeiting the data on magnetic strips. Chips talk with payment terminals in this coded language to authenticate transactions.
  • Data is constantly changing. Unlike static data on magnetic strips, the data on EMV chips changes constantly. Counterfeiting becomes harder because any copied information will no longer be valid, since the info will have changed for the next transaction.

The transition to these safer chip cards has made a difference, with fraud losses due to counterfeiting falling 80% between September 2015 and September 2018 among merchants accepting EMV chip cards.

The U.S. transition to chip cards

In most developed countries, EMV technology was adopted a long time ago. However, migration to EMV chip cards didn’t happen in the U.S. for a long time. There were many reasons for this, including the cost of microchips and the expense of replacing card readers at stores across the country with new ones that could read chips. Ingrained customer behavior was another reason for the slow adoption of chips — people like to swipe their cards.

However, in October of 2015, credit card networks began to shift fraud liability to businesses in order to encourage companies to adopt chip technologies. Starting in 2015, if a consumer used a chip card to pay a business that only processed magnetic stripe cards, the business would be liable for any fraudulent charges — instead of the bank. The bank would remain liable, however, if the business used a payment terminal that could read the chip.

This liability shift was a major driving factor in companies upgrading their card readers to decipher chip cards. By the end of 2018, 68% of merchants who accepted credit cards could process cards with EMV chips, according to PaymentsJournal.

Chip-and-signature vs. chip-and-PIN cards

Although chip technology is standardized, not all chip cards work the same way. There are actually two kinds of chip cards: chip-and-signature cards and chip-and-PIN cards.

Chip-and-signature cards have an embedded microchip, and cards need to be inserted into payment terminals so the payment information can be collected. But just like the old magnetic strip cards, merchants are expected to verify the transaction by getting the card user to sign a receipt and making sure the signature on the receipt matches up with the signature on the card.

Matching signatures is supposed to protect against unauthorized users paying with a stolen credit card. But unfortunately, many merchants don’t actually bother to check that the signatures match — or they try but aren’t handwriting experts who can discern whether the person signing is actually the card’s rightful owner.

Chip-and-PIN cards, on the other hand, require the cardholder to enter a personal identification number, or PIN, into the payment terminal after inserting the card in order for payments to process. This provides an added layer of security because the person paying with the card also needs to know the card’s PIN.

How common are chip-and-PIN cards?

Although they are more secure, chip-and-PIN cards aren’t common in the U.S. In fact, most U.S. card issuers provide chip-and-signature cards rather than chip-and-PIN cards. This is the case for somewhat complicated reasons related to liability for fraud.

Chips in cards protect against counterfeiting, while PINs protect against theft that occurs when a card is lost or stolen. Fraudulent transactions due to lost or stolen cards are more rare than fraudulent transactions associated with counterfeiting. And merchants shoulder a bigger portion of costs associated with lost or stolen card fraud, whereas card issuers are typically responsible for losses resulting from counterfeit fraud.

It’s simply not worth it for card issuers to force consumers to switch to chip-and-PIN cards, which might be more difficult for consumers to use. This transition also won’t save issuers enough to make up for the costs of issuing PINs to millions of customers because those issuers lose so little to fraud involving lost or stolen cards.

In other countries, however, chip-and-PIN technology has been largely adopted as standard, and many terminals won’t even accept payment from chip-and-signature cards.

What to consider if you’re traveling abroad

Unfortunately for American consumers with chip-and-signature cards, using cards abroad can be difficult.

Many automated payment processing machines in other countries will not accept chip-and-signature cards because the machines are only set up to process chip-and-PIN transactions. And when you pay for purchases in stores abroad, merchants sometimes don’t have pens at the register for you to sign your purchase slips.

If you want to avoid hassles associated with your chip-and-signature card while you’re traveling internationally, consider getting a chip-and-PIN card instead. Though less common, there are some available in the U.S.; if you travel abroad often enough, they might be worth finding. 

Since you now know what a chip-and-PIN card is and why it’s worth having one, you can make an informed choice about whether you should look for a chip-and-PIN card before going abroad or stick with the chip card you have.

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Christy Rakoczy

Christy Rakoczy has a Juris Doctorate from UCLA Law School with a focus in Business Law, and a Certificate in Business Marketing with an English Degree from The University of Rochester. As a full-time personal finance writer, she writes about all things money-related but her special areas of focus are credit cards, personal loans, student loans, mortgages, smart debt payoff strategies, and retirement and Social Security. Her work has been featured by USA Today, MSN Money, CNN Money and more, and you can learn more at her LinkedIn profile.