Smart Credit Cards: Are They Safer?

NEW YORK (MainStreet) — Visa (Stock Quote: V) is working hard to get merchants to revamp their credit card systems so banks and other issuers will adopt its smart chip technology, but will smart cards offer added benefits to users?

“I think [smart cards are] a good thing for consumers,” says Beth Robertson, Javelin Strategy & Research’s director of payments research. She explains that the technology is “pretty well-established in existing markets,” which could make it easier for customers to use these credit cards overseas.

Robertson adds that the cards do provide consumers with a heightened level of security, though she says consumers might not understand “how they will be better protected.”

To find out, MainStreet consulted Visa directly.

“The chip cards provide added security because they are resistant to counterfeiting,” Mark Nelsen, a spokesman for Visa, tells MainStreet.

He explains that standard credit cards actually use three pieces of information to let networks know they are valid upon purchase: the account number, expiration date and a card verification value hidden in the magnetic strip.

This data gets stored by merchants and processors after the transaction is complete and therefore is vulnerable to being stolen by anyone savvy enough to get their hands on it and create their own working version of the card.

Chip cards are embedded with the same types of information, but are programmed to change their verification value each time a purchase is made. This value is verified by the network or the issuer via an algorithm designed to figure out whether the code is one a particular chip would have generated.

“If you steal that data, you can’t reuse it,” Nelsen says, as having a dynamic verification value renders the one that was used invalid for future purchases.