March 17, 2017

Payment Confusion: Deciphering Swiping, Dipping and Tapping

How consumers pay in the United States has changed dramatically over the last year and a half. Since American banks and credit card issuers shifted the liability for transactions to merchants on October 1, 2015, customers have been asked to ‘dip’ instead of ‘swipe’ when they’re at the checkout. EMV cards have replaced the magnetic stripe cards that were a mainstay of the American payment landscape for more than four decades. The change, however, has been less than seamless. Seventeen months since the liability shift, confusion still reigns. According to the Merchant Advisory Group’s CEO Mark Horwedel: “Data shows that 34% of Americans still aren’t confident about their knowledge of payments and payment systems.”

Things could in fact become more complicated with the impending, seemingly inevitable widespread introduction of contactless payment – known as ‘tapping’. To make things a little clearer, this post sets out to explain the differences between swiping, dipping and tapping.

Swiping: Established, Speedy and Here to Stay (at Least for the Moment)

Since 1970, magnetic stripe cards have enabled customers in the United States to swipe their card through a reader to make a payment. Taking only about one to two seconds to read the data stored in the stripe, this approach – involving nothing more than swiping and signing – has provided a fast and straight-forward way to pay at the checkout. Accepted virtually everywhere, it’s also been the established mode of cashless payment for decades.

From a security point of view, however, magnetic stripe cards have been found to be lacking. The issue of counterfeiting and the resulting credit card fraud associated with the magnetic stripe approach have prompted banks and issuers to institute alternative systems with improved security features – such as EMV.

Despite the security advantages of other payment approaches, people still seem to favor swiping. In fact, a survey by Ingenico Group – the world’s largest payments terminal manufacturer – found that more than 50% of consumers stated a preference for swiping because it was faster.

The need for ‘backward compatibility’ means, however, that the magnetic data stripe won’t disappear completely – at least for the time being. For example, the very fact that not every merchant in the US is ready to accept EMV and/or contactless cards, means that most chip cards that are issued still come with a magnetic stripe.

What Makes Dipping Different?

EMV cards – EMV stands for Europay, MasterCard and Visa – include an embedded chip that adds transaction verification and security features not offered by magnetic stripe cards. By storing personal data on a chip, this approach makes it much more difficult for data to be stolen or to replicate a card. In contrast to magnetic stripe cards, the information on an EMV card is stored more securely. The CVV number is also dynamically produced – meaning it’s different every time the consumer ‘dips’ their card at a payment terminal.

To use an EMV card, a customer must insert – or ‘dip’ – their card into the slot located at the bottom of an EMV card reader. The consumer is then prompted to either sign or enter their PIN. Unlike in other countries, the initial introduction of EMV cards in the US incorporated a chip-and-signature approach. However, this will be replaced by the more secure chip-and-PIN method during 2017. To successfully complete a transaction, the card must be left inserted until the consumer is notified that they can remove the card from the reader. Retrieving the encrypted data from an EMV card and authorizing a payment takes approximately 10 to 12 seconds – ten times longer than swiping. Alex Johnson of the Mercator Advisor Group says that confusion on the part of the consumer over which payment option to choose at the checkout can add another 10 to 20 seconds to the process.

Tapping to Enable Faster Transaction Times

The introduction of EMV cards is not going to be the last development in the US payment space. Far from it. Contactless payment – made possible by near field communication (NFC) technology – is expected to be adopted in the next few years. Already widely used in a number of countries – including Australia, Canada and the United Kingdom –  this payment system is likely to relieve a lot of the friction at checkouts caused by the longer transaction times associated with dipping.

Contactless payment enables consumers to pay by simply tapping a contactless card or their smartphone to an NFC-enabled payment terminal. The process, sometimes referred to as ‘tapping’, is faster than both swiping and dipping in terms of transaction time – averaging 2-5 seconds per transaction.

Combining the security offered by EMV cards with the transaction speed of magnetic stripe technology, contactless payment will become more widely available as merchants adopt the necessary payment terminals to facilitate the increased use of mobile wallets like Apple Pay and Samsung Pay.

Interested in a particular topic? Want to get our take on a developing issue? Let us know and we could address it in a future post.

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