Smarter Credit Cards Coming Soon: An EMV Primer
As cash becomes passé, new secure chip cards are taking its place and lowering credit card fraud. Here’s what you need to know.
If you’ve ever tried to pay for fuel at a closed filling station or transit an unmanned toll booth in Europe and found that your credit card would not work, you are not alone – but you are probably a U.S. resident with a U.S.-issued credit card that only has a magnetic stripe on it for security.
While the rest of the world has seemingly advanced to more secure chip-based credit cards, the United States has remained firmly rooted in magnetic-stripe technology. That may soon change.
EMV cards, also known as smart cards, have an embedded microprocessor that contains the information the card needs to use to complete a transaction as well as manage various security tasks. Simply put, the chip stores and safely processes data while at the same time makes the card much more difficult to counterfeit. While they are the standard globally, the United States is the only major country where they have not yet been adopted. Canada is in the final stages of an EMV rollout.
The path to EMV acceptance is in part being driven by American frequent travelers who are finding that their magnetic stripe-only credit cards are simply not being accepted by some merchants and that kiosk machines, such as those used to purchase train tickets and pay highway tolls, are simply no longer capable of accepting non-EMV cards.
In addition, problems with non-EMV card acceptance outside the U.S. may have reduced the amount of money spent while travelling. A report issued by the Aite Group showed that, out of a group of 9.9 million cardholders, 5.6 million would have gone on to spend an additional $712 per year, on average, had they not experienced acceptance issues.
EARLY CREDIT CARDS
The first “credit cards” were made from a variety of materials including paper and metal. Modern credit and charge cards got their start in the 1950s, first with Diners Club and then with American Express and BankAmericard (later Visa).
By the 1960s, credit card fraud was rampant due to the lag time between purchase and account verification. Merchants were issued books of invalid credit card numbers but trying to look up each one in a busy retail environment was almost impossible.
IBM, in the meantime, had developed the magnetic stripe in the early 1960s and, by 1970, had figured out how to record the necessary information to conduct a transaction onto the stripe, which was tested in a pilot program with American Express, American Airlines, and IBM. By the 1980s, the stripes were commonplace but they had become too easy to counterfeit and a new solution had to be developed.
The smartcard had been developed in Germany in the late 1960s and an integrated chip was incorporated into all French Carte Bleue debit cards starting in 1992. A few years later, the Geldkarte smartcard became popular in Germany. Smart cards became commonplace with the popularity of GSM mobile phones as the SIM (subscriber identity module) required for each phone is indeed a smartcard in function, if not in size.