5 Roadblocks to the Death of the Card Magstripe
Merchant chip acceptance is one key hurdle keeping card magstripe alive.
According to three industry pros, those dark ribbons of data are going to be around for a long time – despite the recent flood of EMV chips, mobile wallets, contactless cards and magstripe-related fraud risk. That’s because much of the payment world’s infrastructure is still built around the magstripe, they argued, and merchants, credit unions and other card issuers would have to clear some high hurdles before the magstripe breathes its last breath.
1. Gas stations would have to move to EMV. The EMV liability shift in 2015 prompted many retailers to upgrade their point-of-sale systems in order to avoid becoming responsible for fraud associated with fake credit cards. But that didn’t apply to gas stations – their liability shift doesn’t happen until 2020, Allied Solutions Vice President of Risk Consulting Ann Davidson noted.
“Gas pumps do not take chip cards today. So that’s the hurdle – the magstripe cannot go away for pay-at-the-pump,” she said.
2. Merchant EMV acceptance would have to become ubiquitous. Cards have magstripes on them because issuers keep putting them there. One reason for that has a lot to do with the pace at which merchants are accepting EMV, CO-OP Financial Services Director of Application Interface Products Michelle Thornton noted.
Although 59% of U.S. point-of-sale locations now accept chip cards, according to a recent survey, many merchants still either haven’t upgraded to EMV-enabled point-of-sale systems, or they have upgraded but haven’t turned on the part that actually reads the chip. They’re not legally required to accept EMV cards, leaving plenty of magstripe-only checkouts out there, Thornton noted.
But a bigger hurdle may be card issuers’ reluctance to annoy members who want to shop at magstripe-only merchants, she said. That’s likely keeping many from issuing chip-only cards.
“People are very nervous – and I think they should be – about inconveniencing a member,” Thornton explained. “There are plenty of statistics out there that if you get declined or can’t use your card, you put that card away and use one of the other seven cards in your wallet.”
The implication is that card issuers aren’t going to stop issuing cards with magnetic stripes until there’s little chance they’ll be needed.
“I think issuers would be hesitant to do that until it was really pretty clear that 95% of merchants or something like that, you know, are chip-enabled,” she said.
But even that level of chip acceptance might not be good enough if card issuers want their cards to be usable anywhere in the world.
“As much as we would all like to see the magstripe go away quickly, I do not foresee its demise any time soon. There are many pockets in the U.S. and worldwide that may never be EMV capable, and we must continue to ensure interoperability wherever our members go and shop,” Leanne Phelps, SVP of card services at State Employees’ Credit Union in Raleigh, N.C., said. “Mobile and contactless will continue to improve accessibility and the move away from the magstripe, but you are still going to find that location that will need to swipe.”
3. Fallback would have to be under control. Fallback transactions occur when a point-of-sale terminal or ATM can’t read a card’s EMV chip. In those situations, the interaction often “falls back” to a magnetic stripe transaction. In legitimate circumstances, that happens because the card reader or the chip is damaged. But in many cases, fraudsters create fake cards with intentionally damaged chips just to induce fraudulent magstripe transactions.
That’s especially problematic at ATMs, Davidson noted. Card issuers should block magstripe fallback authorizations on their EMV-enabled ATM machines. Otherwise, the card issuers could end up paying, she said.
Stopping fallback, and thus making the magnetic stripe less viable, might require some new rules, Davidson noted. In Canada, for example, card issuers began declining fallback transactions in April.
“What’s really sad is you spent all that money to get the chip on the card and really build that infrastructure, and then they come up with fallback. Well, fallback shifts the fraud liability to the one that just spent all the money to put the chip on the card. The card issuer eats the loss,” Davidson warned.
4. Atypical vendors would need to accelerate EMV adoption. Vending machines, parking garage ticket terminals and lots of other robotic, machine-based sales systems are still largely magstripe-only setups, Thornton noted. “It’s going to take a long time for those merchants to finally move to chip,” she said.
In addition, most prepaid cards and gift cards still only have magnetic stripes. Until those cards become chipped, merchants will have to accept magstripe transactions if they want a sale from those cardholders, Thornton noted.
5. Stripeless card issuance would have to become a priority. Getting rid of magstripes means creating cards that don’t have them. That isn’t a pressing matter for most card issuers right now, Thornton said.
“If you’re looking at it from an issuer perspective, and where can I best spend my money to reduce fraud, it’s probably not in reducing the magstripe – at least at this point,” Thornton said. “You know, five years from now, 10 years from now, those numbers are going to probably change.”
Nonetheless, a day without magnetic stripes is probably coming. It just won’t be soon, thanks in part to an ongoing chicken-and-egg dynamic in which merchants keep running magstripe transactions because issuers keep issuing magstripe cards, and issuers keep issuing magstripe cards because merchants keep running magstripe transactions.
“This is the challenge we have in the U.S.: There’s no mandate saying, ‘Effective this date, no more magstripe,’” Davidson said. “So in the U.S., everything’s wide open … we have all these changes and the shift in the fraud liability, we have the changes in the point-of-sale devices to move to chip, but there’s no mandates out there. There’s no end-date to say, ‘Enough is enough.’”
In any case, the magnetic stripe’s eventual death probably won’t be the fastest in the history of the payments world – but it also probably won’t be the slowest, Thornton added. “I don’t think it’s going to take as long as it takes for the check to go away. I think they were saying the check was going to go away back in, like, 1974.”