Wednesday, August 18, 2021
Beginning in 2027, U.S. banks will no longer be required to issue Mastercard-branded cards with mag stripes. Prepaid debit cards issued in the United States and Canada will be exempt from the change, the company stated.
“The merchant community looks forward to a day when requirements to support the magnetic stripe and the burden to protect data merchants really don’t need are eliminated,” John Drechny, CEO of the Merchant Advisory Group, said of the news. “We’d like to see others in the industry move in this direction."
Magnetic stripes were a breakthrough technology back in the mid-20th century. IBM came up with the idea of coding information onto cards using magnetic tape, a technique already used for audio recordings and computer disk storage. It was a huge breakthrough. Prior to the mag stripe, when debit cards were nascent, credit cards contained embossed numbers, which merchants manually captured and authorized using knuckle busters and bad card lists distributed by the card brands. By the late 1970s, card-issuing banks were encoding account information onto magnetic stripes laminated to the back of each card, and knuckle busters gave way to electronic terminals that could capture and authorize cards in real time.
Chip cards followed about three decades later, promising even better security. The chips, compliant with standards established by EMVCo, create a unique transaction code for each transaction, which is validated by the card-issuing bank to ensure the card is genuine. Having cardholder information on a chip, rather than a mag stripe, also helped protect cardholder information from being compromised.
In recent years, chips have also been configured with tiny antenna that support contactless payments. Some chip cards can even support fingerprint biometrics to verify cardholder identities.
Today, EMV chips are used in 86 percent of face-to-face card transactions globally, according to Mastercard’s data. A December 2020 survey conducted for Mastercard by the Phoenix Consumer Monitor, found more than half of Americans prefer using a chip card at a POS terminal over any other payment method, with better security being the driving factor. That was followed by contactless payments, using cards or digital wallets. Just 11 percent of consumers said they preferred card swipes; among those with experience using contactless payments, just 9 percent said they preferred swiping to pay.
More recently, a July survey by Phoenix found 81 percent of American cardholders would be comfortable with a credit or debit card that didn’t have a mag stripe; 92 percent said they would increase or keep using their cards the same if there were no mag stripes on their cards.
Despite continued enhancements and preferences for chip cards, magstripe cards have remained a fixture on credit and debit cards. But now that’s about to change. Mastercard, in its statement, indicated that by 2033 “no Mastercard credit and debit cards will have magnetic strips, which leave a long runway for the remaining partners who still rely on the technology to phase in chip card processing.”
Banks in Europe, where chip cards are most widely used, will be first to stop issuing mag-stripe cards. For banks in the United States, the stop date for issuing mag-stripe cards is 2027.
“It’s time to fully embrace these best-in-class capabilities, which ensure consumers can pay simply, swiftly and with peace of mind,” said Ajay Bhalla, president of Mastercard’s cyber and intelligence business unit. “What’s best for consumers is what’s best for everyone in the ecosystem.”
“True progress also means retiring technologies that no longer meet our needs,” said Howard Hammond, EVP and head of consumer banking at Fifth Third Bank. “The way we shop, pay and interact is changing, and we are meeting these evolving needs with smarter and more secure experiences.”
Changes in the way payments are made and processed have been taking quantum leaps, propelled most recently by the Covid-19 pandemic and the associated demand for limiting contact in social and commercial settings. In the first quarter of 2021, Mastercard said it saw 1 billion more contactless payments than it did during the same three months of 2020. In the second quarter, 45 percent of all in-person checkout transactions globally were contactless, Mastercard said. Plus, consumers are also more willing to experiment with new payment options, with nearly two-thirds of respondents in a recent Mastercard survey saying they had tried a new payment method.
It’s also becoming easier for businesses to offer contactless. Both Mastercard and Visa, for example, have developed apps that can convert any smartphone into a payment acceptance device without the need for additional hardware or peripherals.
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