Credit card fraud is on the rise and criminals are finding increasingly creative ways to thwart security measures and steal your information. While the Target scandal during the 2013 holiday season put a bright spotlight on the issue, this problem is hardly new. The popular European chip and PIN system is among the proposed changes to increase credit card security in the U.S.
What is the Chip and PIN System?
Chip and PIN systems feature credit cards that are protected by the dual safety features of a data chip and a personal identification number. Unlike the cards that Americans typically use now, these chip and PIN cards don’t have magnetic strips. This protects the user from skimming, a type of credit card scam where criminals would copy the data from the magnetic strip and reproduce it on fraudulent cards. Since chip and PIN cards can’t be used for point of sale purchases without a PIN number, thieves have a harder time using stolen cards.
What are the Roadblocks to Chip and PIN Systems?
While the safety features of chip and PIN systems are impressive, there are some major financial roadblocks to their adoption. In a 2010 interview, Andi Coleman of the Accredited Standard Committee X9 estimated that chip cards cost $15 to $20 to produce while traditional magnetic strip cards cost just $2. Frank Abagnale, a secure document consultant, priced the chip and PIN card readers at $450 each. Adopting this system will be an expensive endeavor for both card issuers and retailers that want to accept the cards.
Some of the expense associated with adopting a chip and PIN system would undoubtedly fall to the consumer in the form of higher interest charges and new fees. This could make shoppers hesitant to turn to these cards as well.
Are Chip and PIN Systems Completely Fraud-Proof?
Chip and PIN systems can significantly reduce point of sale credit card fraud, but they’re not fraud-proof. Adopting this type of system will weed out criminals who are looking for a quick way to get access to another person’s cash, but it won’t stop crime altogether. Smart cyber criminals can and will find ways around the technology. The most notable flaw in the system is that chip and PIN cards don’t protect users from Internet fraud. Criminals can still use these cards for fraudulent Internet or telephone purchases.
How is This System Working Worldwide?
Chip and PIN cards are widely used in the United Kingdom. Though the cards have limited the amount of in-store fraud in the country, it’s clear that criminals have simply moved to new tactics. Fraudulent credit card use via phone and Internet increased from 122.1 million pounds in 2003 to 328.4 million pounds in 2008.
About 50 countries have adopted the technology so many world travelers have already come into contact with these new cards and machines. The popular technology has even given rise to handy devices like the PayPal Here machine. This handheld chip and PIN reader allows small business owners to accept secure payments from chip and PIN cards via a smartphone app. With the technology as widely available as PayPal accounts and LG phones, entrepreneurs can now hop onboard with this credit card technology.
Is America Next?
Some Bank of America cards are already being issued with chip and PIN technology, heralding the wave of the future. On Oct. 1, 2015, fraud liability will shift to merchants if they don’t have chip and PIN machines installed in their stores. The liability shift for automated fuel dispensers will follow on Oct. 1, 2017, to allow more time for retailers to upgrade expensive fuel pump equipment. By the end of 2015, it’s estimated that half of all US terminals will accept chip and PIN cards.
While American shoppers may have a little time yet to acclimate to the new technology, it seems that chip and PIN cards are fast-approaching. While this technology cannot protect from all types of fraud, it does add a new level of protection for point of sale shoppers.
