Tuesday, 23 August 2011

Have We Seen The Last Of Credit Cards As We Know Them?

Nearly two decades ago Visa, MasterCard and Europay (now part of MasterCard) joined together to develop smartcard standards in order to ensure global interoperability for an emerging technology that promised to increase credit card security.
Since then, most European nations as well as Japan and Canada have adopted this so-called EMV international credit card standard and abandoned magnetic stripe credit cards for chip-and-pin cards in the process. The U.S., however, has yet to make such a move, as a look at the back of your credit card will quickly reveal.
Change appears to be afoot though, given Visa’s August 8 announcement that it will expedite implementation of the infrastructure needed to support chip-based payments and the fact that Wells Fargo, Chase and U.S. Bank recently became the first major U.S. credit card companies to offer a limited release of chip-and-pin credit cards. But do these moves really mark the beginning of the end for the magnetic stripe?
Previous threats to the magnetic stripe
To understand the present and predict the future, we must look to the past, specifically previous attempts to replace magnetic stripe credit cards. One of the first supposedly major threats to the magnetic stripe credit card was American Express’ Blue Cash, introduced in 1999 as a way to increase the security of still-novel e-commerce. The card had problems though – it protected billing and shipping information stored by users in “virtual wallets” but did nothing to protect offline transactions. Given this and the fact that consumers are generally insulated from fraud by $0 liability guarantees, the Blue Cash failed as viable alternative to magnetic stripe cards.
One of the next big things was Radio-frequency identification (RFID) contactless payment technology, which was said to provide a simple method of payment that could reduce time spent in checkout lines. However, security concerns and a lack of consumer interest led credit card companies to deem the benefit of the technology not worth the cost of equipping cards. So, contactless payments also failed to catch on.

With the U.S. again appearing poised to adopt new credit card technology, the following two questions must be answered in order to determine whether a shift from magnetic stripe technology is actually likely: “Why now?” & “What’s different this time around?”
Visa explained “why now” in announcing its plans to fast-track EMV within the U.S., saying that the trend of major issuers offering chip-and-pin cards as well as the anticipated popularity of Near Field Communication (NFC) mobile payments made it necessary to start building a foundation for chip-based payments. NFC, for those of you who don’t know, is a chip-based contactless payment technology that, among its multiple applications, allows one’s mobile phone to moonlight as a credit card.
The differences between this and other attempts to dethrone the magnetic stripe card are as follows:
  1. Infrastructure – This time around emerging smartcard technology will have the infrastructure necessary for success, given that Visa will not only waive the costly Payment Card Industry (PCI) Security Standard for merchants who enable their businesses to accept chip-based cards, but also shift credit card fraud liability toward the merchant for transactions where consumers cannot use the chip-based feature of their cards. In other words, merchants have the necessary incentive to provide a platform that will allow chip-based payments to catch on.
  2. Security – NFC lowers the range of communication between a payment device and the receiver from the few yards (in the case of RFID) to 4 inches, thereby significantly decreasing the likelihood of signal intercept. In addition, a PIN is required in most cases to unlock sensitive information.
  3. Influential backing – Google, Visa, Apple, MasterCard, Verizon, T-Mobile and AT&T have all invested in contactless payment technology.
  4. Varied applicability – NFC technology can also turn your smartphone into a boarding pass, coupon or means of acquiring information from NFC receptors anywhere, such as in a museum or from a bus stop ad.
  5. Reduces hassle – While contactless technology was previously added to existing magnetic stripe credit cards, NFC allows you to leave your wallet at home.
Without a doubt, big companies have a significant interest in replacing magnetic stripe credit cards with virtual wallets and thereby creating new revenue streams. However, for most consumers the magstripe works very well. It’s reliable, it’s small and, while it has fraud liabilities, consumers aren’t liable. So, the question therefore becomes: Are the corporate sponsors of contactless payment, so to speak, willing to go all-in? After all, consumers will only move en masse to virtual wallets if magnetic stripe cards are no longer available, and that would require wholesale changes to the payments industry. Whether or not we will soon see the last of credit cards as we know them in the U.S. therefore depends on how committed big companies truly are.

This article is from the editorial team at Card Hub, a leading online marketplace for all types of credit cards, including no international fee credit cards and other no fee credit


No comments:

Post a Comment