What are chip-based and magnetic strip cards?

Chip-based cards have a small chip which stores the account information in an encrypted format and provides an additional level of security by asking for a personal identification number (PIN).

On the other hand, the more commonly owned magnetic strip cards use the black strip seen on the back. These cards are signature-based.

Axis Bank, HDFC Bank, State Bank of India, ICICI Bank, Kotak Mahindra and Citibank, launched chip-based cards last year. However, these were first offered to high networth clients as they have higher credit limits and are more prone to frauds.

Card issuers call this technology EMV – Europay, MasterCard, Visa Standard.

How do chip-based cards work?
If you have to pay through a chip-based card, you will need to insert the card in the point-of-sale (PoS) machine, which reads the encrypted information. Thereafter, you will feed the PIN, authenticating yourself. The transaction is completed only after this second level of authentication.

As of now, a second-level authentication is required with SBI’s magnetic strip debit cards. You are required to feed your automated teller machine (ATM) PIN.

Otherwise, you swipe the magnetic strip card at the PoS machine, which then connects to the bank interphase and the money is deducted.

Which of the two is more beneficial?
Of the two types of cards, chip-based are safer as the PIN authenticates the user and, hence, even if the card is lost, it is not possible to use it. As the data is encrypted, duplicating it is difficult. However, the extra level of security will increase the time taken for retail transactions.

Magnetic strip cards can be used by anyone. Plus, duplication of information is easier. This is especially a problem for those who travel internationally.

In fact, the Reserve Bank of India is also in favour of shifting to chip-based cards to tap frauds. In January, it said it will soon ask banks to shift to chip-based ATM cards.

Earlier this month, it said all credit cards issued three years from now should have an electronic chip and be authenticated by a PIN.

What is the cost of both cards?
Chip-based cards are expensive compared to the signature-based ones as banks’ costs increase. They cost around Rs 80-90 as against Rs 15-20 for magnetic strip cards. That is the reason why banks have started using this technology on cards with a higher risk of fraud. The cost would reduce as more and more banks plan to launch and sell these cards.