Second generation credit cards may sound cool and exciting, but they might not be able to replace current credit cards just yet, according to The New York Times.
The arrival of smart cards has generated quite a bit of buzz of late. Smart credit cards, also known as “chip cards,” carry embedded integrated circuits that allow the card to hold memory instead of just acting as a standard form of payment. The cards have caught on in Europe, where they first arrived. The chip can assist with security or even hold a preset amount of funds for later use on the card.
- “Smart cards” issued by retailers such as Target and card companies like American Express include chips that can be used to download coupons and special offers onto the cards.
Both technologies offer slightly different advantages but have the same idea behind them — innovation. Some critics are beginning to wonder whether this innovation is really necessary.
Tradition vs. Innovation
Traditional credit cards are still in the running as the card of the future, according to The New York Times. While standard magnetic-stripe cards work with any of the approximately 13 million magnetic-stripe readers in the U.S., “smart cards” can only be processed by about 600,000 of the readers.
The issue that arises is adaptability, according to Jim McCarthy, a senior Visa executive who explained the issue to the paper.
“These machines conduct fraud analysis in real time. By keeping cards dumb and security centralized, the company can easily upgrade its central system at any time; changes take effect throughout the network instantaneously. Visa has 686 million cards circulating in the United States; if all were smart cards, each would have to be replaced when it made some kinds of security upgrades,” McCarthy told the Times.
The inconvenience of upgrading these machines could turn away retailers.
The biggest issue that divides critics is security. The magnetic stripe on credit cards is relatively easy for criminals to copy compared to those of some smart cards, which avoid this issue with the chips embedded within the card. The problem smart card issuers face is a lack of incentive for retailers or consumers to make the switch. As mentioned before, retailers would need to replace their card readers as different upgrades became necessary to make smart cards appealing. The federal government has many consumer protection programs against fraud, lessening the need for consumers to push for these new cards.
What the Future Holds
Europe has long embraced chip-and-pin technology which has the customer enter in a PIN after they use their card with a chip. This double form of authentication will give users the ultimate form of security. Many people believe that the U.S. will soon move toward requiring PIN entry, whether it be on the card or on the reader. The PIN would bring extra protection making the magnetic strip cards just as viable as the chip cards.
Two companies, Dynamics and Emue, are working hard to make smart cards so smart that they’ll work with standard card readers. The pair each recently launched revolutionary technology in attempts to change the way credit cards are used to process payments.
- The Emue Card was created to ensure the ultimate security of consumers’ personal information. The card has an embedded keypad for users to authenticate their identity. The Emue Card is in use overseas through Visa Europe.
- Dynamics, a company that produces next generation interactive payment cards, has partnered with Citibank. The innovative card technology will provide customers with convenient tools such as the ability to switch between accounts with one card. The designs Citi is issuing allow users to press a button to select whether they want to use regular credit or rewards points to make purchases.
It comes down to three things people value: safety, convenience and rewards. Whichever distributor can find a combination of the three that will please consumers and make it easy for retailers and banks to work with these cards could come out on top.