If you look at your credit or debit card closely, you will observe that it has a black magnetic strip on the back, or a chip in front, or both. Now that you've found it out on your card and are wondering what it means, read on.
What are these?
Magnetic strip cards: In banking parlance, the black magnetic strip is called magstripe. This is made of tiny magnets in which your account information is stored. When you swipe the card, the electronic data capture (EDC) machine processes the connection with the bank's interface and the transaction goes through.
Chip-based cards: "The chip is embedded on the card and contains all information in an encrypted format," said Prashant Mengawade, head (product and development), ElectraCard Services, a payments solution provider company. "It also comes with a personal identification number (PIN)." This technology has to comply with EMV standards - Europay, MasterCard and Visa.
When a chip-based card is used at the point of sale (POS) terminal, the terminal reads the encrypted format on the card and asks for a PIN and only then is the transaction processed. "A chip-based card cannot be read unless you punch in the PIN," said Mayur Joshi, CEO, Indiaforensic.com, a financial fraud investigation company,
So far, only Axis Bank Ltd, HDFC Bank Ltd, State Bank of India (SBI), ICICI Bank Ltd and Kotak Mahindra Bank Ltd have launched chip-based cards in India. Some banks offer chip-based cards without a PIN; they use your signature for authentication.
Which is better?
Card present transactions: "The major difference is in terms of security," said Mengawade. The chip-based card offers better security compared with magnetic strip cards since it is difficult to duplicate encrypted data and PIN requirement adds another layer of security even if you loose the card.
"Unlike a magnetic strip card, the risk of skimming can be eliminated in a chip-based card," said Joshi. Card skimming is illegal copying of your card data from the magnetic strip. Once a fraudster skims your card, he can create a fake or clone with your details and use it.
The Reserve Bank of India's (RBI) circular on security issues and risk mitigation measures related to card present transactions, dated September 22, says, "A majority of the cards issued by banks in India are magstripe cards and the data stored on such cards are vulnerable to skimming and cloning." In fact, the banking regulator has directed banks to migrate to EMV chip cards and PIN-based cards by June 30, 2013.
"Chip cards have the flexibility to store multiple applications on one card. For instance, loyalty application and e-wallets can be additionally built into the same chip," said Jairam Sridharan, head (consumer lending & payments), Axis Bank.
What about the cost?
"Magnetic strip cards cost around Rs5-10 for banks, while chip-based cards could cost around Rs40-60," said Mengawade. If you lose a chip-based or magnetic strip card, you will have to pay the same amount, usually around Rs100, for replacement of the card.
Strip and chip
As of now, most chip-based cards can be used at POS terminals, but all automated teller machines (ATMs) may not accept them. As per a report submitted to RBI by the working group on securing card present transactions, "Approximately 90% of the existing POS machines are enabled to accept EMV chip cards. ATMs are currently not enabled for acceptance of EMV chip cards. However, approximately 50% of the existing ATMs are capable with upgrades to hardware and software. The rest need major upgrade (or even replacement)."
A few banks now offer cards that have both a chip and a magnetic strip on them. For instance, HDFC Bank offers Platinum Plus chip-based card, which also has a strip on the back. As per the bank's website: "It will take time for all stores and restaurants to be set up with chip-enabled terminals. To ensure your HDFC Bank Platinum Chip card continues to be accepted everywhere, it contains a magnetic strip in addition to the chip."