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Chip Cards are More Secure... Right?

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With credit card security breaches on the rise recently, it should be no surprise that financial institutions are searching for safer modes of commerce. Cue chip-based cards.

Chip-based cards are a more secure magnetic strip card alternative, and have been adopted in most developed nations. They utilize the microchip not only as a storage device, but also as an internal “counter.” Like checks in a checkbook, each transaction is numbered, and if one of the numbers is skipped or repeated, a red flag goes up immediately, signaling possible fraud, and making counterfeit cards much more difficult and expensive to produce.

This is great news, right? Yes… Well, mostly…

You see, Home Depot experienced a security breach this past October, and here is what is really strange: all the fraudulent transactions were chip-enabled transactions, even though chip-enabled cards had yet to be sent out to customers.

Wait, what?

Experts believed that the breach occurred because the internal counters are currently static. While alerts are turned off, or are super- low, the thieves are able to insert stolen card data into payment vehicles after capturing real chip-based card info. The transactions go through because the financial institutions have not yet started counting the counter.

This theory seems to have been validated in a recent, well-known fraud forum. An outspoken card thief advertised the sale of his “Revolution” software- it is essentially information that indicates which financial institutions are transitioning to the chip card, and would thus be more vulnerable to attacks.

If your bank or credit card company informs you that they are changing card types, please be extra vigilant in the first year or so after you receive it so that you do not fall victim to credit card fraud.