updated 11:05 pm EDT, Thu May 8, 2014
Smart chip cards as found in Europe making way to customers in next 18 months
Credit cards in the United States will begin transitioning away from the aging technology of magnetic swipe strips in the next 18 months. Future cards will have embedded smart chips containing card data as well as a magnetic strip, much like the cards that are used in Europe and Canada. The system currently in place, that relies wholly on magnetic strips, is still used in Mongolia, parts of the Middle East, and Papua New Guinea.
Bloomberg reports that companies such as MasterCard and Visa have set internal deadlines for the magnetic strip to chip card upgrades to begin in October 2015. The changeover will mean that retailers nationwide will also have to change terminal systems and readers to accommodate the over 1.2 billion debt and credit cards in the country. Vendors that don't make the switch will be responsible for fraud in face-to-face transactions, in contrast to card issuers holding the liability now.
Nick Holland of Javelin Strategy & Research said that the upgrades can take as long as three years, according to bank and card issuers with "a third of cards upgraded per year." Users of high net worth and international travelers will be the first priority, with people lower on the financial totem pole being addressed later in the process.
A problem still remains with the system, even though it is a fundamental upgrade that has been needed for years. Instead of moving to a chip-and-pin authentication system as used elsewhere, the cards in the US will go to chip-and-signature, leaving one relic of the former system in place.