Electronic payments started In the early 1960s when IBM, one of the main innovators of the magnetic stripe, then allowed banks to encrypt the card information onto the magnetic tape. The magnetic stripe developed to payment terminals and EMV (chip) cards, having real-time authorization and higher security. The magnetic stripe has been a part of the electronic payment system on every card for decades.
Way back when credit cards were up and coming, it was a pain point for business owners. First, they were required to handwrite sensitive customer information. Which then turned into using a knuckle buster, a flatbed imprint that records the card data onto carbon paper. If a customer were trying to use a stolen credit card, the business owner would have no idea. Next, the credit card companies used to circulate a list of bad account numbers. Then the business owner needed to cross-compare their customers’ credit card numbers against the list provided.
Now the chip cards have microprocessors with the latest security, including near field communication, or NFC. NFC uses radio frequency identification technology (RFID) to create a wireless link. Once activated, data can transfer to the other device when a few centimeters apart. In addition, an even better method, biometric technology, is being added to the mix for another layer of security.
Homage to the History
France was the first to use a chip card in the 1960s. However, it was not well received at first and took years to catch on. The main issue was different cards wouldn’t work with every terminal, and this is what lead to the evolution to a global EMV chip technology standard. In Europe, it took until the 1990s until there was an EMV standard, which became the more preferred way to pay. The United States was very behind and didn’t adopt EMV until 2014-2015. The results speak for themselves. For instance, counterfeit fraud decreased by 87% from September 2015 until March 2019. Not only was the fraud a huge decrease, but the EMV card volume went up. In March 2019, it equaled 99%, which is inconceivable to think it was only 1.6% in September of 2015. Today EMV accounts for 86% of face-to-face transactions globally.
It’s no coincidence that more than half of Americans would strictly use a chip card over any other payment method because of the higher security. In addition, roughly 81% of Americans are cool with ditching the magnetic stripe, and 92% reported they would increase the usage of a sans stripe card.
Usually, how we pay used to take years to become a universal thing (here’s looking at you, the US, with your decade-late swap to EMV) anyway, typical hasn’t been much of a thing since the pandemic started. There was a huge push for contactless payments. In Q1, MasterCard reposted 1 billion MORE contactless transactions compared to Q1 in 2020. Globally Q2 showed 45% of in-person transactions were contactless. The younger generations are increasingly willing to explore new payment options. Meanwhile, 66% of the surveyors said they would not try new payment methods in the older generation if the pandemic didn’t happen.
And now we’ve come full circle where the swipe is phasing out, just like the knuckle busters did, in favor of better technology. By 2024 MasterCard will not require the magnetic stripe, and while by 2033, they shouldn’t have any stripe cards in circulation. It’s anticipated that by 2027, the magnetic stripe will be put to rest in 2027 once it becomes the norm in the U.S.
It will be interesting to see what changes happen in the next few years. We know payments will always be a part of that, so join Platinum Payments and be kept up to date with any rules or regulations. Our payment professionals are trained weekly to make sure they can offer the best to their customers.
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