MAG Insights

In the summer of 2020 I had suggested the major underperformer of magnetic stripe call it a day and retire.  As more modern, relevant, and better performing technologies come to market, we need to embrace them and let go of the non-performers. 

There was certainly a time and place for the magnetic stripe for purposes of authenticating payment credentials. At its introduction, magnetic stripe eliminated merchants having to call for authorizations on every transaction and turned the payments industry on its head by introducing real-time authorizations. Merchants desperately needed the innovation at the time; however, the absurd amount of fraud exposure to the industry enabled by magnetic stripe, alongside the introduction of a more secure chip technology, suggests it is time to say goodbye to the stripe.  

Banks and networks have continued to issue chip cards with a magnetic stripe included to ensure interoperability and acceptance of card payments across the globe because not all markets or merchant verticals have fully deployed EMV chip at the point of sale.  Those markets and verticals continue to make progress towards chip acceptance, though.  

Unfortunately, the magnetic stripe is a flawed technology that has enabled higher levels of fraud.  The data on the magnetic stripe is static, making it easier for fraudsters to lift information and clone it onto a new counterfeit card.  In addition, the data embedded in the magnetic stripe is passed in the clear when used for payment at a point of sale, which suggests other layers of security are required to compensate for its security flaws.  Alternatively, a chip card produces a dynamic cryptogram for each transaction which helps the issuer validate that the card is authentic and the chip itself is difficult to replicate.  As consumer behaviors migrate to online and touchless experiences, the magnetic stripe becomes more irrelevant than ever before as a technology that continues to require a consumer to touch a physical card and interact physically with a point of sale terminal.

Over the past several months, MAG has engaged with the global networks to discuss an approach for retiring this outdated payment technology throughout the industry.  Mastercard recently announced an initial plan to start this timeline.  While MAG welcomes this first step, the industry must move collectively together in order to gain the ultimate benefits among all stakeholders.  Oftentimes when new technologies are introduced, the old technologies are not removed. The continued use of old technologies then puts the improved solutions at a disadvantage and also requires all stakeholders in the industry to support multiple technologies, which is an inefficient and counterproductive approach.

MAG expects the plan over the next decade or so to be an authentic retirement of legacy payments technology.  As such, we fully expect that all networks and issuers will follow suit.  Along that same train of thought, certain carve-outs outlined in the Mastercard plan such as prepaid card programs are expected to fold into this roadmap over time. 

Our goal is to continue engagement with all the payments networks to identify a collaborative and aligned plan that ensures the industry moves in the right direction at a smart and thoughtful pace with consideration of all stakeholders needs.  We realize there are specific retail verticals that need a longer runway to progress their chip implementations.  We also realize there are other use cases the magnetic stripe has fulfilled for which alternative solutions and related experiences will need to be devised, such as kiosk check-in at the airport as one example.  In addition, there are various stakeholders that need adequate planning to enable terminal software that supports chip-only acceptance as well as sufficient time to replace merchant payments terminals as old terminals hit end of life.  All of these considerations require magnetic stripe retirement to be an industry effort versus the effort of one payments network in isolation.

The primary value to our merchant membership is to remove a flawed payments product from the marketplace when other more secure and capable products are available.  Be assured, MAG will continue to drive momentum towards the ongoing objective to reduce risk to merchants of fraud and losses.  MAG urges the industry collectively find the right environment to enable all stakeholders to have a voice over the next several years while discussing magnetic stripe retirement.