What Is an Integrated Circuit Card?

An integrated circuit card, or chip card, is a type of payment or identification card that uses an embedded circuit, such as a computer chip, to store data instead of or in addition to a traditional magnetic stripe. Integrated circuit cards are made of plastic or a similar material and are most often associated with specific credit cards known as EMV or chip-&-pin credit and debit cards.

Key Takeaways

  • Integrated circuit cards contain a microchip that stores the cardholder's information, the most common being EMV or chip-&-pin credit or debit cards.
  • Integrated circuit cards are primarily used in credit cards and debit cards but are frequently used in other settings, such as employee identification cards.
  • These cards are a deterrent against identity theft as they avoid using the magnetic stripe of a card, which increases the ease of data skimming for identity thieves.

Understanding an Integrated Circuit Card

Integrated circuit cards allow the storage of information on the card itself. For example, a consumer's information on this type of payment card is accessed when the card is used in a card scanner. Combined with other security measures such as a PIN or password, the chip allows the secure transmission of personal and financial information.

Originally known as Europay, MasterCard, Visa (EMV) after the companies that created these cards, the technology and standards are now managed by EMVco. These types of cards are also known as “smart cards” due to their integrated circuit chip. Though they were initially used in Europe and Asia, their use has spread with increasing frequency in the United States. EMV has become a standard in payment card security technology and has been deployed by financial institutions such as banks and credit card providers.

While integrated circuit cards are often associated with credit and debit cards, they are also used in a variety of other settings. For example, employees may be assigned an identification card that they must scan in order to be allowed inside a secure building.

How Integrated Circuit Cards Are Used to Combat Identity Theft

Magnetic stripe cards have been frequently duplicated, allowing identity thieves to create copies of the original card, as well as sell the account information they have illegally accessed. The use of the embedded chip in an integrated circuit card can reduce such fraud as it makes skimming a less effective means of accessing account information.

Transactions with an integrated circuit card require the chip to be inserted into the chip reader, where available, thus making the magnetic stripe a backup feature to be used only when a chip reader is not available. Since fraudsters cannot access the information secured by integrated circuit cards as easily as a magnetic stripe, they're not able to authenticate their illicit transactions. Many integrated circuit cards also have a contactless payment method, whereby the chip can be read over a short distance, further avoiding the use of a magnetic stripe.

As a result of this anti-theft technology, integrated circuit cards are seeing more use at retail locations as more chip readers are introduced to accommodate this form of payment security. The cards still typically include a magnetic stripe as well to allow transactions to be completed if a chip reader is not available at a retailer’s store.