Fintech Insights

Why EMV chip cards are replacing magnetic stripes

August 04, 2019

EMV chip cards versus magnetic stripe 

Most of us never gave much thought to the black strip on the back of our credit cards. When “dipping” started to replace swiping, suddenly everyone had an opinion about credit card technology.

Banks, credit card networks and security experts praised the safer chip card technology. Still, there was—and still is—resistance to change. Many consumers and merchants prefer the familiar ease of swiping at the register.

So which is better? EMV chip cards or traditional magnetic stripe? Let’s compare.

Magnetic stripe: a blast from the past

Magnetic stripe stands among the most successful technologies in the history of modern business. Created in the late 1960s, magnetic stripe is the technology behind public transportation tickets, ID badges, driver’s licenses, and credit and debit cards.

Magnetic stripe technology is fairly simple by today’s standards. Magnetic stripe stores data in tracks of magnetic strips affixed to plastic cards. When a card is swiped at the point of sale, card data is read by a magnetic head. Credit and debit card data is formatted on two tracks with the payment details: the primary account number, name, expiration date and PIN code.

Banks and credit card companies began widespread adoption of magnetic stripe technology in the 1980s. Though it’s slowly being replaced in the US—and is even closer to retirement worldwide— consumers still use magnetic stripe for payment billions of times each year.

Magnetic stripe meets its match in modern fraud

Magnetic stripe gained popularity when it became easy and inexpensive to replicate cards with simple, inexpensive, low-tech equipment. Criminals eventually caught up: “skimmers” could replicate a magnetic stripe card reader. Though invisible to the naked eye, stealing personal data proved trivial to fraudsters.

The results are all too familiar as news headlines continue to detail the financial impacts of fraud. Once the data was stolen from a magnetic stripe card it could be replicated on counterfeit cards and used to fraudulently purchase merchandise. 

The static data storage of magnetic stripe would prove its undoing. Fraudsters had found a leak to exploit, so the technology of the 1960s needed an update.

Chip cards: the future is now

Chip cards plug the security holes left by magnetic stripe. Chip cards replace static, unprotected data with dynamic cryptographic data. The “chip” is for the microcircuit in every card. Chip card technology makes it much harder to counterfeit cards.

Chip cards help protect a new world of digital commerce. The technology behind magnetic stripe was born in the 1960s, and its framework was sealed early on. The technology behind chip cards was born in the 1990s at the dawn of the commercial internet.

Chip card technology and EMV standards continue to evolve, even today. EMV stands for Europay, Mastercard and Visa who joined together in the early 1990s to create common standards that make card payments safer. Before EMV, each card network had independent standards. Creating common standards makes staying safe easier for everyone—consumers, banks, card networks, payment processors and the businesses that accept electronic payments.

Today, EMV chip card standards are maintained by a private organization, EMVCo, which is managed by leading card networks including American Express, Discover, JCB, Mastercard, UnionPay and Visa.

EMVCo continues to develop and maintain standards that will keep modern commerce safe into the future. From contact and contactless EMV to tokenization, QR codes to 3-D secure, the technology that began with chip cards is a foundation of the efforts to secure modern commerce.

Making chip card technology work for your business

Chip card technology is proving effective in fighting fraud and is increasingly accepted by shoppers.

In 2018 Visa reported that businesses who implemented chip card technology saw a remarkable 80 percent drop in counterfeit fraud dollars in the three years between September 2015 and September 2018.

Changing years of habits from “swiping” to “dipping” wasn’t always easy for consumers or the businesses that served them. Like most new things, eventually everyone adjusted. An April 2018 survey by Worldpay and Socratic Technologies showed that 82 percent of credit card users report positive chip card experiences.

Whether you’re just starting your business journey or are already far along, you’ll almost certainly need to accept credit and debit cards. To keep more of what you earn, you’ll need the most current technology to do so safely. You’ll also want expertise to guide you along so you can leave payment security to others to focus on what you do best.

We understand the importance of keeping businesses safe. We understands chip card technology, too, and can put it to work to help safeguard what you’ve built. Connect with one of our payments experts today to learn how.