Credit Card chip technology has been common in Europe, and most of the world for several years, but it took a large, nationwide data breach at Target, one that taught us many valuable business lessons, to convince American banks and retailers to begin to stray away from the current credit card technology, which has been around for more than 50 years.
The future of credit cards is coming in the next 18 months, according to Bloomberg. The transition to chip and pin technology won’t be easy, though. Visa and Mastercard have set a deadline of October 2015 to implement this technology, which seems optimistic, considering only 1.5 percent of existing cards and 10 percent of sales terminals are ready as of right now.
Chip Technology Should Prevent Another Target-like Attack
Credit card chip technology is supposed to eliminate nearly any possibility of a data breach, and is much more secure than the current technology, which utilizes a magnetic strip that can easily be manipulated to compromise personal information and PIN data. In the case of the Target breach, hackers installed malware on 25 store terminals to crack credit card accounts, and later used their data to reproduce counterfeit cards which were sold on the black market. The new chip and pin technology will all but eliminate the possibility of this happening again. This is because these cards will essentially have a mini-computer onboard, which encrypts data differently for each individual transaction, whereas traditional magnetic stripe cards encrypt each transaction the same way. Hacking chip and pin credit cards is virtually impossible.
The Challenges of Credit Card Chip Technology Rollout in the U.S.
The biggest reason chip and pin technology hasn’t found its way into American’s wallets sooner is because of the huge scale change would need to occur on. The US, along with countries like Mongolia, Papua New Guinea, and some smaller countries in the Middle East are the only places in the world still utilizing outdated, easy to manipulate credit card technology. The US can afford to implement this technology, although the massive scale of implementation has been overwhelming, and was not necessarily a priority until hackers learned to game the system with regularity to make it a necessity.There have been two rather difficult roadblocks for banks and retailers working against credit card chip technology in the US:
- There are 1.2 billion credit and debit cards circulating in the U.S.
- There are 8 million retailers (and growing) who accept credit cards.
While nearly every retailer in the U.S. accepts plastic payments, the machines they use to accept payments are magnetic card readers, and are not designed for credit card chip technology. Not only will banks have to reissue billions of cards with chip and pin technology, retailers will have to spend billions of dollars on new hardware to accept the future of credit cards.
This also affects businesses like Square, who will have to create new hardware to keep their business model intact along with the future of credit cards.
The challenges of rolling out chip and pin credit cards in the United States somewhat resembles the Digital TV transition in 2009 for consumers, in which broadcasters were forced to end transmission of analog TV. The future of credit cards, much like the future of TV a few years back, may cause some initial confusion, but is in our best interests to avoid another massive scale data breach.
The US hopes for a smooth transition, and could possibly take up to three full years to make a nationwide switch to chip and pin technology, as opposed to imposing a hard cutoff date, as Europe used in 2005.
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