Are PIN codes stored on cards, or are they stored in a central location? How does it all work?

Answer 1

The PIN's themselves are not stored anywhere. What is stored is a verification value. The PIN you enter at the terminal will be encrypted. This value, along with the relevant security keys and unique data, will go into a calculation to produce a verification value. If the calculated verification value matches the stored verification value, the PIN is regarded as being correct.

The stored verification value will typically be held in a central location and on the card if the card is a chip card. The card will typically be authorised by an authorising computer in a central location that holds your account information. The transaction, however, may occasionally be authorised by the card. The card will only authorise under certain conditions such as the requested amount being below a certain amount. The number of transactions since the authorising computer last authorised your request for money is also a consideration. These conditions are typcially configured by the card issuer.

This is why the verification value is stored in a central location and on the card.

Answer 2

You can learn all about Chip and PIN at the official website: http://www.chipandpin.co.uk/

Their FAQ about where the PIN is stored says:
The PIN is securely encrypted (held in a secure memory) within the chip, meaning that it is extremely difficult and time consuming for a criminal to access the PIN if your card is stolen, and they would be likely to destroy the card in the process.

Answer 3

PINs are stored on a central data-bank. Your account details are stored on your card, and in the central data- base. When you put your card in a shop machine it reads your a/c details. Then, when you put in your PIN the details are matched by the DB. If they match, your purchase is then OK'd.