The Last Swipe? Magnetic-Stripe Credit Cards May Be On the Way Out

14 April 2011 | 02:46 PM ET | Matt Liebowitz, SecurityNewsDaily Staff Writer

The age of the magnetic-stripe credit card may be nearing an end in the United States.

In a push to meet standards that have long been in practice in Europe and the rest of the world, Wells Fargo announced Tuesday (April 13) that it would be testing microchip-embedded credit cards that use the more secure “chip and PIN” technology by the middle of this year, Bloomberg News reported.

One day later, JPMorgan Chase said it would beat Wells Fargo to the punch by rolling out chip-and-PIN cards by June.

Chip and PIN and EMV

Chip-and-PIN cards are implanted with a tiny computer chip containing the card’s financial information. The chip is read by a point-of-purchase terminal, and then the card holder verifies his or her authenticity by typing in a four-digit personal identification number (PIN).

If the PIN doesn’t match the data on the chip, the transaction will be denied.

The system, established in 1999, is formally known as the EMV standard and is the result of a joint effort by MasterCard, Visa and their counterpart Europay to standardize payment practices. It has been in practice in Europe and much of the rest of the world since 2005.

EMV has almost completely replaced the older magnetic-stripe card standard in Europe, making it difficult at times for North American tourists to purchase goods and meals while traveling.

Partly as a result of that inconvenience, Wells Fargo has invited 15,000 customers to take part in the pilot program, making the first time a major U.S. bank has embraced the EMV standard. Participants in the program will receive EMV Visa cards.

The U.S. is stuck in the past

Traditional magnetic-stripe credit and debit cards have been in existence for nearly 50 years, and are easily exploitable. A crafty criminal could conceivably use a cassette-tape recorder to make a copy of the sensitive financial data encoded on a standard credit card’s magnetic stripe.

Yet despite the security risks present in our everyday credit cards, the U.S. continues to lag behind in adopting the new, more secure EMV system.

“The U.S. is among the last developed nations whose payment system relies primarily on cards with magnetic stripes and hasn’t yet adopted EMV,” Bloomberg’s Elizabeth Ody wrote.

“The system used in the United States is similar to that used in North Korea,” Brian Dodge, spokesman for the Arlington, Virginia-based Retail Industry Leaders Association, told Bloomberg News. “Any system that reduces fraud is a win for consumers and a win for retailers.”

The European Payments Council passed a resolution this past January that allows banks to “refuse magnetic stripe transactions if they so wish,” and mandates that magnetic stripes cards be used only in “exceptional cases.”

The president and chief executive of the Canadian payments authority told Bloomberg News that all card and ATMs in Canada would be converted to the EMV standard by the end of 2012.

Have card, will travel

Wells Fargo’s decision to venture into the smart card market seems to come less from a security perspective than from a need to accommodate frequent travelers.

“We want to remain top-of-wallet, wherever our customers are,” Eric Schindewolf, vice president of product development for Wells Fargo’s consumer credit-card unit, told Bloomberg.

But the U.S., rather than jump full force into the chip-and-PIN world — a leap that would force the replacement of millions of existing cards and hundreds of thousands of point-of-sale terminals — might develop its own smart-card technologies, security analysts say.

Benjamin Jun, vice present of technology at Cryptography Research, told MSNBC he believes the U.S. will put its weight behind the emergent Near Field Communication (NFC) standard, a short-range wireless protocol that lets smartphones communicate with dedicated readers at cash registers and point-of-sale terminals, effectively turning smartphones into payment devices.

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