Change is on the horizon for MasterCard and Visa cardholders in the United States. Both brands announced that they will be updating their credit cards from the magnetic stripe to the chip-and-pin format. The U.S. is one of the last major countries to transition to the chip-and-pin format. Countries in Europe have been using the chip and pin method since 2005, as have Asia and South America. Canada plans to make the switch in the coming year.
The switch in formats has proved very effective for the United Kingdom where they have seen a significant reduction in credit card fraud. The U.K. Payments Administration stated that since the implementation of the chip-and-pin credit cards, in-store credit card fraud dropped from 218.8 million pounds in 2004 ($356.5 million) to 98.5 million pounds in 2008 ($160.5 million).
Unlike the magnetic stripe currently used on credit cards around the United States, these cards have a smart chip containing the cardholder’s information and each time you swipe the card you are required to enter a four-digit PIN that corresponds with a number inside the chip. The chip-and-pin is a much more secure method for cardholders than the traditional magnetic stripe card. The added security measure of needing to enter a specific PIN makes it more difficult for someone to steal and use your cardholder information. The magnetic stripe is less secure because criminals have the ability to easily steal information from the stripe and can then produce fake credit cards with fake stripes.
MasterCard and Visa are both planning to have the change to the chip-and-pin format completed in the United States by April 2013. By this time, merchants are expected to have a processor in place that is able to accept chip-and-pin credit cards in their stores.