The Rise and Fall of the Magnetic Stripe

When people consider the most revolutionary technologies of the 20th century, the personal computer and the development of air travel are often high on the list. However the magnetic stripe, which was essential for the widespread adoption of credit cards, is a little-considered technology that is the foundation for much of modern finance. During the past four decades, the magnetic stripe has made credit card processing possible, allowing consumers to easily and quickly purchase goods and services, both at retail stores and over the internet.
Transportation networks, such as the London subway system and several airlines, were some of the early adopters of this technology as they looked for ways to simplify the processes by which customers received tickets. Banks also were excited by the possibilities of magnetic stripes, which could be combined with the new technology of automated teller machines to expedite the process of money transfers.
However, if there was one company that may have been most responsible for the rise of these stripes, it would be IBM. Big Blue has long been a giant in the world of computing even back in the days of the punch card before transistors became widespread. IBM first became interested in stripes for use in database applications, which at the time was a big business for the company given its longstanding association with the enterprise market.
For the rest of the world, however, their first experience with the rise of magnetic stripes would be in 1970 when IBM, along with American Express and American Airlines, implemented the new technology in order to help air travelers with ticket purchasing. This would be a huge success and lead to other industries, most notably banks and the credit card processing companies, embracing magnetic stripes.
It would become a household technology by 1980 when both Mastercard and Visa, two of the largest credit card processing companies in the world, decided to use them in their credit cards after production costs dropped from dollars to just pennies.
The rest, as they say, is history. The credit card industry, buoyed by a strong economy and increasing demand from consumers, saw tremendous growth throughout the past several decades; by 2011, credit card companies were processing nearly $800 billion in transactions every year. Without the magnetic stripe, this would not have been possible.
Despite all the benefits the it has conferred on society, however, the use of this technology is starting to wane as credit card companies increasingly embrace newer digital technologies like the microchip. Alternatively, many technology companies, including the search engine giant Google, are developing digital wallets that essentially convert smart phones into credit cards.
Although the magnetic stripe's time is starting to come to an end, it has had a fruitful impact on the development of the finance industry throughout the latter half of the 20th century and greatly improved the lives of people who depended on it to make their financial transactions easier.