How More Secure Credit Cards Could Help Usher in the End of Credit Cards

The mobile payment revolution is supposed to be upon us. Apple Pay et al were supposed to sweep us off our feet and free us from our wallets. Unfortunately, the revolution has been a little slow to get off the ground. There are number of issues at play here, but one is that the way we pay for things is probably one the most deeply engrained habits we have. For any new technology to disrupt that kind of established behavior it has to provide a clear and significant benefit over the existing solution. Think about credit cards vs cash and personal checks. On both fronts there are clear benefits to using a credit card. So far, mobile payment technology has not provided that kind of clear benefit. There’s not much difference between pulling out your phone and pulling out your wallet. Swiping a credit card just isn’t that hard. It’s actually a really convenient way to buy things. However, the increasing adoption of more secure, “chip” based credit cards may provide the opening that mobile payment tech needs.

It happens to me more and more frequently. I walk up to the register, ready to check out. My stuff gets rung up and I swipe my card. However, instead of getting prompted for a signature, I get prompted that my card is a “chip” card and it needs to be inserted into the bottom of the card reader. So I insert it. Then I wait. And wait. Finally the transaction goes through.

That wait feels long. The card reader gives me very clear instructions: Do not remove card. Yet I find myself impatiently reaching for it multiple times before it’s all over. The wait was feeling so long that I started timing it. On average it takes about 7 seconds for my chip transactions to process. In reality this is a drop in the bucket of time, but man does it feel like an eternity. Swiping a card feels fast. It feels just as fast as pulling out my phone. But waiting for that chip card to process feels more like I’m going back to writing personal checks.

Just to be sure I wasn’t crazy, I did a little digging. Here is an excerpt about chip card processing from the FAQ’s on creditcards.com:

“Instead of going to a register and swiping your card, you are going to do what is called ‘card dipping’ instead, which means inserting your card into a terminal slot and waiting for it to process,” Conroy says.

When an [chip] card is dipped, data flows between the card chip and the issuing financial institution to verify the card’s legitimacy and create the unique transaction data. This process isn’t as quick as a magnetic-stripe swipe.

“It will take a tiny bit longer for that transmission of data to happen,” Witts says. “If a person just sticks the card in and pulls it out, the transaction will likely be denied. A little bit of patience will be involved.”

So chip cards do take longer than a magnetic-stripe swipe. But here is what’s weird. The main benefit, and why chip cards take longer, is increased security. The chip creates a unique transaction code every time it is used, so it can’t be replicated by would be thieves. This is great, and definitely makes me feel good, but it’s the same security technology embedded into Apple Pay. Yet, Apple Pay seems to process in a fraction of the time.

Why do chip cards feel like they take soooo much longer? I think the answer lies in the “dipping” vs. “swiping” process described above.

Compared to swiping a card (or using your phone), card dipping significantly changes the interaction model of paying, causing a person to focus more intently on how long the transaction is taking to process.

When you swipe a card, the card never leaves your hand. Often, while you are waiting for the transaction to go through, you are actively putting your card back into your wallet or pocket. Partly this is because you don’t want to loose your card. But mostly it’s because you need your hand to sign for the purchase. You swipe, and then put the card away in order to free your hand to sign. This is important because while you are putting your card away, you are distracted. The transaction is processing in the background and you aren’t paying attention to how long that transaction is taking. By the time you look back up, bam, it’s ready for your signature.

The interaction is the same when paying with your phone. You pull out your phone, pay and then put your phone back into your pocket.

With a chip card on the other hand, your card has to stay in the card reader the entire time it is processing. You aren’t distracted by putting your card away so you are more likely to focus on what’s happening, and, consequently, how long it is taking. On top of that, your card is now out of your hands, which introduces the risk of leaving your card behind and makes you even more focused on what’s happening.

Suddenly the processing time starts to feel long and tedious. And when behavior starts to feel long and tedious, that is exactly when it becomes ripe for disruption.

Below are two charts from research conducted by Pymnts.com on Apple Pay adoption from November 2014 — October 2015.

Over three samples, an average of about 35% of people who had not tried Apple Pay said it was because they were satisfied with their current payment method. And, when asked about ease of use, speed and convenience about half the people who had used Apple Pay reported it to be “about the same” as swiping a credit card. You don’t get people to change engrained behavior with answers like that.

However, the people in those groups are vulnerable. Their main reason for not adopting mobile payments is because the status quo is working for them. Any disruption to the status quo can start to open them up to the possibility of new solutions. If chip cards start to make it feel harder and more tedious to pay with a credit card, suddenly mobile payments have a more clear and significant benefit. This small change could be enough to push people to try something new and help drive adoption of mobile payments over the tipping point.