by Intrepid Payment Processing
One of the most important mile stones in the history of payment systems in the United States arrived without much fanfare. On the first day of October 2015, the Europay, MasterCard, and Visa (EMV) standard became legally significant through what is known as the liability shift. As banks, merchants, consumers, and payments processors begin to implement the new system, one of the questions we are constantly hearing is: How long until the old magnetic stripe system goes away?
The days of the magnetic strip (magstripe) are far from over. Although the liability shift from the issuer to banks and merchants should be a strong motivator for everyone in the payments industry to adopt the EMV chip system as soon as possible, we will probably see the magstripe for a few more years.
The Strawhecker Group, a management consulting company based in Omaha, recently conducted a survey on American EMV adoption. The survey indicates that only about a quarter of all merchants were ready for EMV on its official October 1 date. The forecast at this time is that less than half of all merchants will be EMV compliant 12 months from now.
Although the liability shift is a pretty serious matter since it has the potential of affecting the bottom line of banks and merchants, there is no clear mandate to perform this upgrade. For this reason, we believe it may take a few years until the magstripe becomes a thing of the past, and the transition will be similar to what Microsoft has encountered with its Windows XP operating system.
Despite Microsoft’s efforts to convince users of the risks of using Windows XP, recent statistics published by data analytics firm Net Applications indicate that millions of people are still using the old operating system, which is installed in more systems than Apple OS X, Linux, and even the new Windows 10. The Windows XP stalwarts use it because it works, and thus they are in no immediate rush to upgrade.
With more than a billion magstripe credit and debit cards currently in circulation in the United States, issuers have a major task ahead of them in terms of switching cardholders over to the new EMV chip system. Furthermore, there are more than 10 million card readers in operation that also need to be replaced. This is a major undertaking, and there is one more factor to consider: the magstripe will be the system of last resort until full EMV adoption is complete.
Starting October 1, 2015, if a magstripe cardholder wishes to complete a retail transaction where an EMV card reader has been installed, a magstripe transaction will take place. Because this is a system that still works, we think it may take a few years before it goes away completely, similar to Windows XP.
Copyright 2015 Intrepid Payment Processing