The magnetic stripe found on credit cards has had a long run. Several decades to be accurate. Created in the 1960s, the magnetic stripe changed the way that consumers and merchants did business. Now, the death of the magnetic stripe is imminent, making way for “chip cards.”
Credit cards and retailers have decided to make the switch to chip cards because too many security breaches related to magnetic stripes have cost banks too much money. As of October 1st, merchants, rather than credit card companies, will be held liable for fraudulent charges if they do not utilize chip card readers.
In recent years, magnetic stripe cards have become targets by savvy hackers and identity thieves. Encoded information about the cardholder is found on the stripes and criminals can access this information by using an altered card reader or by hacking into a retailer’s “secure” network. They can then make counterfeit cards which will work until the security breach is discovered and the credit card numbers are changed.
Chip cards constitute a safer alternative to magnetic stripes. The cards communicate with card readers to create specific, unique data each time they are used. If a criminal got a hold of that data and created a counterfeit card, it would be useless for future transactions. Chip cards can also be used in combination with a holder’s signature and PIN, thereby making it more difficult for the thieves who steal physical cards to use them.
It appears that the biggest complaint regarding the chip cards is the length of time needed to complete a transaction. Rather than swipe a card and put it away, chip card holders must insert the card into a reader and leave it there for the duration of the transaction. It also takes time for the system to verify the transaction and issue a unique transaction code. The process takes additional time as consumers and merchants learn how to use the new technology.
Six out of ten credit card holders still do not have a chip card. Merchants are not ready either, as only five to ten percent of United States retailers are prepared to accept chip cards. Many merchants express no interest in adopting the technology.
Laurence Cook, co-founder and CEO of nanoPay, an online payments company, proffered that, “I think it’s going to take a lot of time for people to get used to it.” Sean McQuay, a credit cards expert at NerdWallet, noted that, “We’re not going to have an overnight shift.” Matt Schulz, senior industry analyst at CreditCards.com echoes these sentiments. “This is the biggest change in decades in how credit cards are used in America, so we shouldn’t be surprised that things are moving slowly.”
Jerome Svigals, a lead developer of the magnetic stripe technology at IBM, predicts that chip cards will only have a fraction of the length of the career that the magnetic stripe enjoyed. He points out that many of the new machines that read chip cards are also equipped with technology that can communicate directly with a person’s smartphone. He expects the chip card to be replaced by smartphone payments in the near future.