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The iconic magnetic strip on the back of credit cards is going away and it is a bigger deal than most investors understand. This is how to play it.
Executives at Mastercard (MA) announced last week that beginning in 2024 newly issued credit cards in most markets will no longer require a magnetic stip. The cards will depend fully on chip technology.
Investors should accumulate NXP Semiconductors (NXPI).
The so-called magstripe on the back of most credit cards harkens back to older technology. Swiping a card for purchases seemed like an evolution when the technology was developed in the 1960s by International Business Machines (IBM). Banks were battling rampant fraud as thousands of phony cards began showing up at shopping malls and gas stations.
Modern cards have both a magstripe and EMV chip technology on board.
A study by EMVCo, an industry group founded by Europay, Mastercard and Visa, found that 86.1% of global payments are now made using chip technology.
To push that pace along the credit card industry lobbied for something called the EMV liability shift, an incentive for American retailers and banks to start supporting EMV technology. Following the shift merchants who did accept EMV tech became liable for fraud.
NXP Semiconductors is the world’s largest producer of EMV chips used in credit and debit cards. The Dutch company is the co-inventor of near field communications. NFC is the chip technology used to make contactless payments secure. The intellectual property is used by every smartphone maker in the world.
The total addressable market for NFC has grown from only $9.5 billion in 2017 to a projected $25.5 billion this year. Statista notes that the 2024 projected market is $47.3 billion.
NXP is going to win most of that maker with innovative products and relationships with Amazon.com (AMZN), Alphabet (GOOGL), Apple (AAPL), Ford (F), General Motors (GM) and all of the large credit card companies.
Getting rid of the magstripe might not seem like a big deal. It is. It’s how the next part of the contactless payment revolution begins.
Investors should consider buy NXP into weakness.