Magnetic Stripes: How They Work and Why They Will Never Completely Disappear
Go ahead, and swipe your card — it's an invitation you've been hearing less frequently as more merchants update their payment terminals to accept chip-enabled credit cards. However, there are still plenty of retailers where swiping is still the norm.
In fact, I swiped my credit card at FedEx just before I interviewed RL Prasad, senior vice president of payment systems risk at Visa, for this story. Prasad walked me through the ins and outs of how magnetic stripe technology works, why it's more susceptible to fraud and whether inserting chip cards and tapping mobile devices will completely replace the act of swiping.
Storing and Sending Data Via Stripe
While you only see one stripe on your credit card, there are three separate tracks in the stripe. Prasad said that tracks 1 and 2 are the most crucial. "The core details are stored on these two tracks," he told me. "They carry the cardholder's name, the card number, expiration date and the CVV value."
He said the third track is not always utilized. When it is, it may carry more advanced details such as what currencies are valid for use with the card, but the purpose of processing payments, your information typically travels on those first two tracks.
Transmitting that data involves a few parties, and you can dig into more of the details in How Credit Cards Work. "When a consumer swipes in a shop, the card reader picks up the data in the tracks and transmits the data to the acquirer," Prasad said. "The acquirer routes it to the issuer and procures an authorization. Then, the customer gets approved.
"The way the data is transmitted is important," Prasad added. "Via magnetic stripe, it is static data. If a thief has a card reader, he can swipe the card, copy all that data and go create another card. Because the values are static, the counterfeit copy will have all the credentials of yours."
The ease of credit card fraud is the fuel behind the shift to chip cards, which operate on a dynamic data. Anytime a customer inserts a chip card, a new value is generated. "It's incredibly difficult to clone a chip card," Prasad said.
Swiping Is Going to Stick Around
According to Visa's most recent data, more than 75% of US storefronts now accept chip cards, and Prasad said that the adoption rate for chip cards continues to accelerate. However, he pointed out that magnetic stripe technology will not disappear. "We don't see magnetic stripe completely going away," Prasad said. "While we have seen adoption rates above 90% in certain parts of the world [for chip cards], we believe magnetic stripes will continue to be in use for some time."
Prasad pointed to small corner stores where merchants may not see the need to update their payment terminals anytime soon. The biggest category of merchants where swiping is still the norm is what Visa calls AFDs — automated fuel dispensers. In layman's terms, those are gas stations, which are often easy targets for thieves looking to install credit card skimmers. However, many of those pumps will change next year. In October 2020, the liability for fraudulent purchases at gas stations shifts from the banking industry to the operators of those payment terminals. Since fraud can be quite costly, it's a big incentive for gas station owners to switch from the magnetic stripe to chip cards.
If you're worried that your card's information might be stolen on one of your next swipes, you can take additional safety steps. Prasad highlighted Visa's mobile location confirmation technology, which uses your phone's location to mitigate the risks of fraud. "It links your phone to your location," Prasad said. "So if you're in Los Angeles tomorrow, for example, it automatically helps authenticate purchases in the area more quickly and raises a red flag for suspicious purchases."
If you have a Visa card, Prasad said that you should contact your bank to enroll in the mobile location confirmation service. And whether you're swiping or inserting your card, be sure to follow "Simple Steps to Avoid Falling Victim to Credit Card Fraud."