Citi Reinvents the Credit Card

The rest of the world is abandoning the black magnetic strip on the back of credit cards, moving instead to embedded chips. While new U.S. passports and some state licenses use such technology, U.S. credit card companies have not made any significant advances beyond the use of the strip in recent years. But that's all about to change.

Next month Citibank will begin testing a new 2G credit card, which incorporates an embedded chip and a battery, along with two buttons and lights. The buttons let cardholders choose whether to pay for a purchase with credit or "thank you points" (rewards), according to the New York Times.

Citi plans to offer the new card to existing account holders of two rewards accounts.

While the buttons change the data associated with the sale, they still operate using the magnetic strips on the back.

New card technology is being tested by other card issuers as well, says the Times. In the near future, consumers could see cards that have embedded fraud protection, act as a dual credit and debit card, or combine multiple accounts onto one card.

The real issue, however, is not new card technology — but how long credit cards will remain in existence.

Apple, MasterCard, Visa, and other companies (including startups such as MobilePayUSA) are working on a whole new way to apply credit via "virtual wallets" that operate through a consumer's smartphone. If such an approach takes off, it could end up throwing the conventional credit card on the technology scrap heap. Don't look for that to happen anytime soon, however — there are a lot of issues still to work out, not the least of which is setting a standard everyone can follow.

So for now, magnetic strip-backed credit cards are likely to stick around in the U.S., even as they undergo technological improvement. Mobile technology, meanwhile, is bringing virtual check-in rewards to the purchase process.