In 1967, the airlines were flying Boeing 727s and Douglas DC-8s. Air travel was still special, and the airlines were raking in cash. But a problem loomed, and it was potentially calamitous. The airlines had placed their orders for the first wide-body aircraft—the 747 and the DC-10—and these giant planes would dramatically boost the number of people arriving simultaneously at customer service counters. So to prevent chaos at those counters, the airlines had to find a way to speed up ticket sales and passenger processing.
Banks, too, were facing difficulties. Bank-backed credit cards were surging in popularity, and merchants were swamped with paperwork: Every time a customer charged an item, the merchant had to write out a charge slip and make a phone call to get the charge authorized. And all-night convenience stores and even the growing popularity of late-night television meant that people were no longer satisfied with banker’s hours and expected banks to make services available on evenings and weekends.
The only way to solve these problems without hiring hordes of staff, for both the airlines and the banks, was to let customers serve themselves, with the help of a computer. For banks, that meant the ATM. For airlines, a similar kiosk could track reservations and dispense boarding passes. It would be easy enough to design a machine to spit out money or documents. But to get customers to trust these machines, engineers would first have to come up with a way to let users identify themselves that was fast, easy, and secure.
The answer turned out to be the magnetic-stripe card. Developed by IBM, it rolled out in the ’70s, caught on globally in the ’80s, and was essentially ubiquitous by the ’90s. And in North America especially, it has withstood many challenges over the years to become one of the most successful technologies of the past half century. Consider the numbers: In 2011 alone, 6 billion bank cards around the world, along with transit tickets and other magnetic-strip media, went through card readers some 50 billion times.
The biggest challenge came in the mid-1980s, when smart-card technology emerged. Smart cards look much like mag-stripe cards—indeed, most still contain a mag stripe for use where smart-card readers aren’t available—but embedded within the plastic of the card is a microprocessor. That chip tracks the card’s activity, which means that some 85 percent of transactions can be authorized just from the information stored on the chip, without going online—a boon where network access is spotty. They can also have hidden personal identification numbers—that is, the card can check a PIN entered by a user without revealing it to the equipment reading the card, which is a big improvement in security. In Europe and some other regions outside of North America, the mag-stripe card has been fully eclipsed by the chip-based smart card. The former has continued to thrive, however, in the United States and Canada.
But the end is finally in sight for the mag-stripe card. Even in North America, emerging smartphone-based pay schemes making use of Near Field Communication are now starting to catch on and will likely eventually replace the venerable charge plate. So as we head into a new era of tech-enabled transactions, it’s a good time to sing the praises of the unsung engineering behind a technology that has been so stunningly successful.
So back we go to 1967 and the struggles of the airline and banking industries to serve their customers without drastically increasing their customer service staffs.
Along came Big Blue to the rescue. At IBM’s Advanced Systems Division, several hundred developers based in Los Gatos, Calif., and Armonk, N.Y., were charged with creating new computer applications to drive the sale of computers. The researchers came up with a card that was about the same size as existing raised-letter charge plates—and was readable by a machine. They decided that a single machine-reading scheme should be used for both the airlines and the banks, saving the consumer from carrying multiple cards and IBM from having to manufacture different kinds of card-printing equipment.