Credit Cards: Visa Says Goodbye to Mag-Stripe, Hello to Chip
On Tuesday, Visa said it is making an effort to urge U.S. merchants to install technology at cash registers that accepts cards embedded with a computer chip. The company wants Americans to start using credit and debit cards that have E.M.V. (Europay, MasterCard, Visa) chips, which are widely available overseas.
The chip is a microprocessor that provides additional security at unattended kiosks. The cards are more secure than traditional cards that use magnetic stripe technology.
Embracing the new technology would decrease the problems Americans face when traveling abroad, since U.S. credit card companies and merchants are still using the archaic magnetic stripe. “Mag-stripe” cards often do not work at unattended kiosks, such as train-ticket vending machines or unnamed gas stations, so U.S. consumers often find themselves in difficult situations when overseas.
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The chip would also reduce credit card fraud because thieves can easily copy magnetic stripe cards, says Visa.
E.M.V. technology will also boost the mobile systems industry. The chip allows shoppers to pay for items by simply waving their mobile phones at a payment terminal.
However, a problem that has arisen is that the proposed cards are largely unavailable in the U.S. because banks claim the demand is too low to justify the additional costs. Retailers dread spending more money on new payment systems and credit card companies are reluctant to adopt chip cards until merchants agree to accept them.
To accelerate the process, Visa plans to offer financial incentives to merchants that install supporting E.M.V. technology, by eliminating a requirement that they complete annual security certifications. If that does not motivate merchants, starting 2015, Visa is pushing to hold merchants responsible for fraud costs that stem from any transaction where merchants refused to adopt contactless chip terminals.
“Many reading the news may be wondering ‘why now?’” Ellen Richey, Visa’s chief enterprise risk officer, wrote in a blog post.
“For several years, Visa has been talking with clients and merchants on this subject-- and now more than ever before, we’re hearing confirmation that chip is the right direction for the U.S. Over the last year, for example, we’ve seen financial institutions issuing chip cards to international travelers, and some large merchants have already begun installing chip terminals.”
“With a commercial framework in place, our goal is to enhance security and support the next generation of payments,” Richey added.
The proposed changeover could take five to six years. Visa set a deadline for payment processors and sub-processors to support E.M.V. transactions by April 2013.
In the near future, the chip card could be supplemented with “dynamic authentication,” which creates a unique card that cannot be duplicated. For instance, the dynamic authentication could be a time-sensitive token transmitted from a phone that is later matched against a consumer’s credit card number.
Nonetheless, Visa says the end of the “mag-stripe” credit card is near.
“The way we buy things and pay for things is about to go through a fundamental transformation,” said Jeff Kagan, a technology analyst. “First it was cash to credit cards. Now it’s credit cards to the mobile wallet on your cell phone.”
