After 60 years of service, the magnetic stripe will leave the card payments world, albeit withering away in parts of the world for 12 more years. In early August 2021, Mastercard announced that the magnetic stripe could be removed from 2024 and would be gone by 2033.
A Bit of the History
Magnetic stripes were added to our payment cards in the 1960s to make them more secure and give us a faster electronic way to capture more card and payment data; rather than completing paper vouchers by hand or with the embossed card in a ‘zip zap’ machine - watch your knuckles!.
The biggest ‘win’ was that they stopped card number transposition at a merchant or keying errors at the acquirer. It meant that the stripe could also hold significantly more card data, cardholder details and other proprietary/security information for the transaction messaging. The magnetic stripe also facilitated ATM cash withdrawals and card acceptance in POS devices - both standalone and integrated. Subsequently, we would deliver new acceptance locations that included unattended terminals, kiosks etc.
We still needed the embossed data on the card in case the magnetic stripe failed or for merchants that could not read the stripe. There was regular accidental erasing of the magnetic stripe and dirty swipe readers in merchant POS devices did not help either.
The Achilles heel for the magnetic stripe was its simplicity and ease with which it could be read, copied and re-written by fraudsters. More online authorisations for card payments partly addressed this, but issuers still approved the fraud on these 'counterfeit' cards. At the start of the ‘patchy’ online authorisation 'role out', authorisation 'Floor Limits' and 'Hot Card File’ lists were widely deployed but problematic. And fraudsters would then easily generate fictitious account details to bypass Floor Limits or card black lists, to copy fake card details or extract genuine magnetic stripe data and placed on real plastics, counterfeit cards and of course 'white plastic’ for ATM use.
In the early 1990s, chip card technology was introduced - both at ATMs and POS. But with different chip standards being deployed, it required a more global approach - which was finally delivered through EMVCo specifications that were supported with industry incentives, and a host of new complex rules and implementation challenges.
This foretold the death of the magnetic stripe as the introduction of EMV chip successfully secured and delivered the same payment data, and more, and much more securely. And with global EMV chip deployment mandates, widespread use (including the USA), and with global liability shifts; a way has been carved to allow what is on our cards to start to change faster and faster over the coming years. But the industry still feels the need to hold onto ‘fallback’ options like magnetic stripe to make things easier where a chip cannot be read, or for countries that have not fully converted - but for how much longer, and at what cost to achieve?
What we Know From Mastercard:
Nearly 90% of face-to-face card transactions globally use EMV chips - whether contact or contactless
From 2024, magnetic stripe becomes optional for issuers in certain regions, including Europe; and from 2027 in the US region
From 2029, no new Mastercard debit or credit card will be issued with a magnetic stripe (but not prepaid cards in North America!)
By 2033, no Mastercard debit or credit cards will feature a magnetic stripe.
What we do not Know:
There have been no announcements from Visa Inc yet. With both major card schemes aligned on this action, it will ease global communication and more rapid success.
What will the other international and regional card brands do?
Mastercard indicate that at least 10% of face-to-face card payment transactions globally are non-EMV chip: we do not know what the plan is to accelerate its reduction?
How quickly will embossed card numbers take to disappear too - this appears to have started with some card programmes already?
What will the plans be to communicate this to the general public and to the merchants - the industry needs to manage expectations?
When will the signature panel disappear - we all know that it is not used or checked in most markets?
Will the ‘physical’ plastic card itself also disappear soon too as we migrate to our mobile devices, wearables, or make payments more on the internet.
These debates will go on for much longer yet. But before any next steps can follow, the removal of the magnetic stripe needs to happen and be monitored as the outcomes may be complex because of the variations in its use and removal globally and across many, many different brands and systems that will all need to be managed and communicated with.
This decision on killing-off the magnetic stripe has been long expected and has taken a long time to come; Mastercard has now set a clear agenda and timeline: that may seem obvious and simple; but is probably also rather bold, complex and global.
But it may also be regarded as a little indecisive or timid in providing 12 more years to ‘get the job done’ - at least on Mastercard branded products.
Kevin Smith and Bill Trueman are directors at Riskskill, and are payments and risk specialist, with over 25 years of experience. For more information about Riskskill visit website at www.riskskill.com
For further information, please contact: Bill Trueman or Kevin Smith at enquiries@riskskill.com