From the Stripe to the Chip

While we haven't been noticing it in the United States, there is a worldwide advancement in credit card technology.

Magnetic stripes, seen on the back of most of the cards in your wallet, are not nearly as secure a method for storing your information as a microchip embedded inside the card itself.

The cards with these embedded chips, known as an Integrated Circuit Cards, adhere to a standard language among EMV (Europay, Mastercard, and Visa) authentication systems.

This 3 mm x 5 mm chip can encrypt the data within the card, something a magnetic stripe cannot do. This makes them more secure and less prone to fraud, saving money for merchants and banks.

So, why isn't the US adopting these cards?

The problem is with current POS (Point of Sale) technology. While most POS terminals in the United States are built to read magnetic stripes, they have to be upgraded (or replaced) in order to read EMV cards.

Merchants typically do not want to invest in new equipment without a demonstrable increase in security, or reduction in fees.

To incentivize the POS changeover, Visa is offering merchants a waiver on annual security fees if they adopt the new technology. Mastercard has said it will shift liability for fraud on cards with magnetic stripes away from the bank, and onto the merchant.

Merchants have been slow to upgrade, and widespread adoption relies on acceptance on the ground, at the terminal, the Point of Sale.

Change is Inevitable

In the rest of the world, magnetic stripes are becoming obsolete. Americans traveling abroad would be wise to have at least one EMV card in their wallet, or they may find themselves at an ATM with a wallet full of useless cards. 

Simply put, the current card technology in the United States is outdated technology. Upgrading to EMV cards will happen, but the pace and difficulty of the adoption could be longer and harder than anybody wants.

Chip Inventor Offered Reward to Hackers

Roland Moreno, the inventor of the microchip used in credit cards, offered a reward of a million francs to anyone who could break the encryption. Moreno died this week in France, and to this date, the encryption on these credit cards has proved to be unbreakable.

Do you have any microchip-powered cards in your wallet? Tell us in the comments below.

 

Matthew Koren is the President of Priority Payments Northwest, a credit card processing and payroll service provider located in Portland, OR. He runs his company, as well as partnering with a consulting practice: Causeit, Inc. You can contact him by filling out the Contact Us page, or by calling 866-402-1485, ext 750.