The magnetic stripe on regular credit cards contains all the sensitive information on the card, while chip-and-PIN cards encode that information on a small microchip. Chip-and-PIN cards are generally more secure than credit cards that rely on signature verification, since chip-and-PIN cards keep many account details from the retailer's view.
Chip-and-PIN cards require a pin number to be associated with card to verify purchases -- just like a bank cash card. With a chip-and-PIN card, an in-store transaction is processed slightly differently than those made with magnetic stripe cards. A chip-and-PIN card is usually inserted into the credit terminal instead of swiped. The shopper then enters her PIN instead of signing a receipt to verify the charge.
Chip-and-PIN networks around the world vary in levels of compatibility. Chip-and-PIN cards from Europe can only be processed in some countries if the card also can be verified by swiping the magnetic stripe. Many card issuers use a hybrid chip and pin card for this reason. The chip-and-PIN card can still offer greater security in compatible areas, while the stripe can be used like a conventional card in incompatible areas.
Because chip-and-PIN cards are more secure in the way they process information, card issuers consider transactions approved with a PIN far less likely to be fraudulent. For this reason, it can be more complicated to dispute fraudulent charges, should someone charge your card and know your pin.