First, let’s see how the payments landscape was shaped by the magnetic strip. Before its introduction, processing card payments was a hassle, to say the least. Back then, merchants had to record transactions by using Zip-Zap machines. These machines allowed merchant employees to manually imprint a card’s raised numbers onto a 3-sheeted paper. Given the way you had to operate such a machine, it’s no wonder that they were known as ‘Knuckle Busters’. One of the resulting sheets would go to the issuer, one to the card owner, and the remaining one would be kept by the merchant. Finally, if the transaction exceeded a certain limit, the merchant would have had to call an authorisation service to get it approved. All in all, it would have taken you 10 to 15 minutes to complete a card payment.
The magnetic strip was introduced in the ‘60s and it brought along instant authorisation, it provided more security, and businesses found it easier to accept card payments. The magnetic strip boosted the credit card industry, allowing both banks and merchants to benefit from a less expensive solution which also fueled innovation.
Nowadays, the payment industry enjoys the benefits of contactless technology, so the role of the magnetic strip becomes more and more irrelevant. Using smartphones to make payments is a growing trend and if we were to compare a chip-based card to one with a magnetic strip, the former is more secure. According to Visa, cards with chips are 76% less likely to fall victim to counterfeit fraud. That’s because a chip is much harder (and more expensive) to duplicate due to its advanced technology, as opposed to a magnetic strip. Also, with the rise of anti-fraud innovation, such as biometric cards that make use of a user’s fingertips to verify their identity, fraudsters will be kept at bay, at least more so than with antiquated credit or debit cards.
Starting with 2024, Mastercard’s newly issued cards won’t have to feature the magnetic strip anymore and the company is set to remove it completely by 2033. According to Fortune, Mastercard is confident that the long timeframe will allow all its partners to move on to the more advanced chip card processing. Mastercard says that card transactions using the chip technology take up 86% of face-to-face card payments so the 2033 deadline seems feasible.
The pandemic acted as a catalyst to an already-present trend, contactless payments. The credit card industry notices steady growth in the contactless transactions sector, as indicated by Q1 of 2021 when Mastercard recorded 1 billion more payments using contactless technology as opposed to Q1 of 2020. Also, in Q2 of 2021, out of all face-to-face checkout payments around the world, 45% of them were contactless. This indicates that the transition from the magnetic strip to contactless cards will be smooth and the 2033 deadline will allow every industry player to ease into more advanced technology at their own pace.