EXTON, Pa.—Inside a one-story brick factory surrounded by a locked chain fence, more than a thousand workers toil in a plant that operates around the clock to help U.S. banks catch up to the rest of the world in credit-card security.

The owner of the plant, Oberthur Technologies, is racing to meet the banking industry’s demand for new cards embedded with a computer chip in addition to a traditional magnetic strip. The goal: to reduce card fraud by making it harder for thieves to create counterfeit cards.

Some 575 million of the new cards—representing about three-quarters of U.S. credit cards and about 40% of debit cards—are expected to be in the wallets of American consumers by year-end, making it the biggest rollout of new cards in decades.

Chip cards, which have been used throughout Europe, Asia and Canada for years, are coming to the U.S. after delays from banks that issue cards and the merchants who accept them.

But challenges remain: Even though tens of millions of new cards have already been shipped to customers, only Wal-Mart Stores Inc. and a few other large retailers so far have upgraded their payment terminals to accept the new plastic. Target Corp., which had a massive breach in late 2013, has upgraded its terminals and plans to start accepting chip cards in the late spring, according to a spokesman.