After nearly 60 years of being a staple in the credit card industry, magnetic stripes are finally being phased out. Mastercard announced its plan to slowly replace all cards with magnetic stripes over the next 12 years.
All new cards will have the option to be void of the magnetic stripe starting in 2024 in Europe and 2027 in the U.S. All cards with magnetic stripes will be completely phased out by 2029 in Europe and 2033 in the U.S.
So while banks and credit card companies have already given merchants plenty of reasons to adopt the chip and PIN technology, they’ve still left plenty of time for the new technology to be gradually adopted.
What Came Before Magnetic Stripes?
Most of you are probably not old enough to remember, but magnetics stripes weren’t on the original credit cards.
Forms of credit have been around for millennia, though credit only began to closely resemble our current system in the early 20th century. Shoppers could card small medals or plates that granted them credit at specific stores.
Later, the technology evolved into charge plates. Merchants would make an imprint of the card on paper using an embossing plate. These were cumbersome, insecure, and often left staff members with bloody knuckles.
It wasn’t until 1960 that IBM released the first credit card with a magnetic stripe. Check out our blog for more info on the history of credit cards.
How Has Credit Card Security Evolved?
Credit cards have constantly changed in order to provide more efficient service at the checkout and more security for the customer.
Indeed, magnetic stripes were a major innovation at the time. They made for a much faster checkout experience, while also adding substantial security for the merchant. Prior to the magnetic stripe, merchants had no way of validating that the customer had sufficient funds or an active account at the checkout. Transactions would only be processed in batches at the end of the business day, leaving the merchant rather helpless in the event that payment was declined.
Swiped cards with a magnetic stripe, instead, sent the payment information immediately to the issuing bank, which gave the merchant an approved or declined response at the time of checkout.
Why Are EMV Cards Replacing Magnetic Stripes?
Despite being a vast improvement from the prior iteration of credit cards, chip and PIN cards are the wave of the future. In reality, they’re already here and ubiquitously used.
Interestingly, the technology evolved around the same time as the magnetic stripe. France was the first country to introduce them in the early 1960s. At the time, however, different chips didn’t work at different terminals, creating a logistical nightmare for merchants.
Over time, this problem has been alleviated by a global standard for EMV technology, allowing it to be readily adopted. In fact, most European countries have used only EMV cards since the 1990s. And while the United States has been slower to adopt it, the majority of consumers now use cards with EMV or contactless technology fully enabled.
How Do EMV Cards Provide More Security?
In short, EMV payments process each transaction with dynamic information. This means it changes every time the card is used.
Magnetic stripes, on the other hand, keep the same financial information on the card at all times. This makes it much easier for criminals to steal personal financial information and use the card for fraudulent purchases.
There are no ways to rig an ATM or credit card terminal to steal financial information from EMV cards. This gives consumers more trust in using their credit cards and minimizes headaches and chargebacks for merchants.
What Does Mastercard’s Decision Mean for Retailers?
While Mastercard has left merchants with plenty of time to adapt, it’s important for merchants to make changes now. There are already regulations in place that penalize merchants for any chargebacks on swiped transactions. For instance, retailers are responsible for compensating the cardholder for any fraudulent transaction that occurs by way of the magnetic stripe.
See Also: FAQs on EMVs
Additionally, consumers increasingly prefer using PINs or swipes. Only 11% of credit card users claimed they preferred to swipe their credit cards. And the vast majority are perfectly comfortable with the new technology.
At the end of the day, if the regulations aren’t enough of a sway, merchants must adapt to consumer demand. Adapting to a different landscape is a critical aspect of running a successful business. And all things considered, this one is pretty easy.
How Can Your POS System Help?
We’re here to make this switch seamless! KORONA POS integrates with a variety of modern payment terminals and payment processors that ensure your business has the proper modern technology.
If you’re currently using magnetic stripes at your business, give us a call. We’ll walk you through the process and assist you with getting a modern POS system set up and running.
Click below to learn more.