The world of paying for things hasn’t adopted new technology as fast as you might think; there’s an intermediate-level likelihood that within the next 25-50 years, you can simply swipe the back of your wallet against a device and it will read the cards inside and boom, you’re out of the supermarket — but the path to that point has been slow, and that’s perhaps nowhere better illustrated than the fact that, in the U.S., we still sign our credit card receipts, as opposed to swiping and entering a pin. That’s about to change, potentially by October 2015. (Most of the world doesn’t actually sign credit card receipts.)
What happened process-wise here was that the Target data breach led to more scrutiny (and a couple of hundred people getting canned, it seems), which got all the way to the Senate, and the big idea was credit cards embedded with microchip data. That makes it hard for massive data breaches to be pulled off, so the Senate loved that, and now VISA and MasterCard (two giants in that space) have “road maps” for changing over their cards. The target is October 2015, which means — if you consider typical American business BS and holidays getting in the way, the real target is probably pre-holidays 2015.
The new system is called EMV, and here’s why it took so long to come to the U.S.:
There’s a historical view to this. In the past, other markets migrated for two reasons. First, there were higher fraud rates in some other markets, and they wanted to make this move to combat fraud. Second, this system can operate in offline mode – the card and the terminal can authorize a transaction independent of communication with the bank’s systems. In some other markets they struggled with robust telephony networks, so this offline capacity was attractive.
Both those factors were not driving factors here in America. Fraud was more prominent in some other markets, but what has happened since then is that as other markets migrated to EMV and became more secure, fraudsters migrated their activity to markets with less security. We saw fraudsters move over to the US market – they are looking for the path of least resistance.
There were also some more specific challenges to US migration to the new system. Because the US is one of the largest and most complex markets, the business cases for the costs had to be established. And there were requirements of the Durbin amendment, mandating all us debit transactions are able to go across at least two networks, which took some time for the industry to sort out.
Broadly speaking, the base idea of the credit card may phase out over the next 20 years; people will still need a card and need the card linked to something, I would guess, but the whole idea of waiting on the line, stopping, swiping, signing, etc. — that’s probably going to devolve over time. Indian subway systems have “near-swipe,” which would be huge for major U.S. metros. What about swiping bar codes and then tallying without a line? (Obviously there are major fraud implications there, but it could be worked out.) If you did this enough, couldn’t your phone know your aisles and your stops and send you some discount ideas? Whole thing could get interesting. But for now … let’s start with fixing the fact that we have to sign CC receipts in America.