Why is credit card fraud migrating to the U.S.?
It’s because current credit card technology is antiquated and needs to be modernized. The magnetic strip on cards issued by U.S. banks today was invented in the 1960s and has not been updated since its invention. Due to the outdated technology, criminals have found ways to easily compromise and counterfeit credit cards that carry the magnetic strip and rely on a signature as the only consumer authentication.
FACT: The U.S. has 25 percent more credit card fraud overall due to our reliance on an outdated magnetic strip. (Wall Street Journal)
Regulators and law enforcement have expressed support for moving towards more advanced Chip and PIN card technology. Chip and PIN is currently being used in nearly every other G-20 nation and is reducing fraud.
FACT: Since the United Kingdom started using the Chip and PIN technology, fraud losses at retailers have fallen 67 percent, and lost or stolen card fraud has fallen 58 percent. (www.smartcardalliance.org)
What Are Chip and PIN Cards and How Are They More Secure?
Chip and PIN cards, also known as smart chip or EMV cards, have a microchip embedded in them that allows for more secure payment transactions. The PIN (Personal Identification Number) is the pivotal part of the two-factor authentication process that provides an additional layer of security.
The Chip contains the card information that previously was found on the magnetic strip of traditional cards. However the Chip makes it far more difficult to counterfeit the credit card as the embedded Chip uses a different authentication code each time the card is used by the consumer.
Then, the PIN takes over.
A secure PIN needs to be provided by the consumer in order to complete the sale, therefore making it much harder for criminals to complete fraudulent credit card transactions.
Why Have Our Credit Card Companies Not Upgraded To The Chip and PIN Technology?
Credit card companies here in the United States would rather accept the costs of fraud than to invest in the Chip and PIN technology system for their consumers. In the end, banks, credit unions and credit card companies can recoup the fraud costs by passing along the costs to their customers by increasing bank and transaction fees.
Instead of investing in the most secure package of technology available today, card companies such as VISA, MasterCard, American Express and Discover are looking to bring a half step variation of this technology, known as Chip & Signature or Chip & Choice, to the U.S. without the crucial functionality of PINs.
FACT: According to the Federal Reserve, Chip and PIN cards are 700 percent more secure than Chip and Signature. (Federal Reserve, “2011 Interchange Fee Revenue, Covered Issuer Costs, And Covered Issuer And Merchant Fraud Losses Related To Debit Card Transactions,” 3/5/13)
Consumer groups and merchants have very serious concerns that the U.S. consumers are being shortchanged out of the more secure Chip and PIN technology. Many merchants already have Chip and PIN-enabled terminals in place today, so why won’t the banks live up to their end of the bargain?
According to industry experts, mag-stripe cards costs $1 to manufacture, while the more secure Chip and PIN cards cost $4 to manufacture. We think you would agree that the $3 price difference is well worth the added security and peace of mind to shoppers.
What Do Consumers Think?
Source: Chip & PIN Security Now! Research
TargetPoint Consulting, November 2014