A More Secure Chip Based Credit Cards Will Still Require a Signature
Even though the new chip-enabled credit cards are coming out before 2016 to the US, it might take years before this PIN-based and safer security will be used all around the nation.
The new upcoming credit card technology should increase security dramatically and even decrease the chances of a possible theft. However an occasional signing of a receipt will be required.
United States, by October 1st of 2015, will be using a ‘new’ technology which in fact has already been used for years elsewhere. This new technology is actually a chip that is built into the credit card which will guarantee much better security against fraudulent activity. The old and most common way was just simple credit card with a magnetic stripe swipe through a point of sale machine. This method will be discontinued and most likely it won’t take long since after October all of the retailers still using terminals supporting old swipe will be accountable for fraudulent purchases.
Companies within US that issues credit cards are saying that it’s about time, yet they have been one if not the most unwilling ones to adopt chip-enabled credit cards.
The vice president of emerging payments in MasterCard, Oliver Manahan, has said: “Counterfeit fraud, a most predominant type of fraud today, will be dramatically reduced by the chip itself”.
It took a long time to get here for the US, and it also is the last country of the group of twenty (G20) members to start using chip-enabled cards.
There are plenty of reasons why. Credit card companies actually were pretty resistant to start adopting such cards for the sole reason of the cards being more expensive to produce, retailers also were resistant due to payment terminals being costly to upgrade, as well as credit card system in the US is pretty complex. On top of retailers wanting easy transactions and financial institutions wanting same transactions to be secure, MasterCard and Visa sit between retailers and banks as the US’ pivotal processors for credit cards.
Fraud has risen since the US has lacked the incentive to adapt chipped cards. In the US, magnetic stripe cards have been used since the 1970s and are much easier to clone when compared to the chipped cards. To sum up, in 2013 in the US over 6 billion of US dollars was lost to credit card frauds, up from 4.5 billion of US dollars in year 2011, according to Aite’s Group, industry research firm, report.
A senior vice president at Visa specializing in chipped cards’ adoption, Kim Lawrence, said that financial industry is especially concerned about one type of fraud and that is counterfeit card fraud. Kim blamed such hacks like the ones at Target and other similar retailers in which important personal data like numbers of credit cards of tens of millions and even hundreds of millions of online customers have been stolen.
Chip-enabled credit cards’ system is much safer. The mostly used chipped credit card’s type is called EMV for MasterCard, Europay and Visa, developers of this technology. Industry experts say that in some types of credit card fraudulent activity could be easily cut in half by these cards. Aite Group noted that after United Kingdom adopted chipped cards early, counterfeit credit card fraud dropped to around 67 million of US dollars in 2013 from 151 million of US dollars in 2004, which is quite impressive. Overall, during the same period of time, fraud from stolen and lost credit cards has dropped by a third.
There are two ways in which chipped cards can be used. One of those two require buyer to type in a personal identification number, or just PIN, right after the chip has been read by the terminal, effectively adding additional level to protect them against both the use of stolen and lost cards and counterfeit cards. The other type of transaction just reads the chip and then asks for a signature just like the today’s old system, however without the magnetic stripe. The so-called “Chip-and-signature” cards will be supported by Square, which have announced their plans just last week for its mobile devices’ chipped-card readers.
Instead of switching to the more secure passcode personal identification number (PIN) system, US will go for that one first.
Independent as well as banking analysts says that this system will do good enough for now. Kim Lawrence have also added that credit card companies are not ready yet to change so many things in one shot, no matter them admitting that it’s safer.
However new chip based cards will not solve everything. Criminals on the Internet basically renders new system no more secure than the old one since it is easy for them to use stolen credit card numbers without them actually needing physical card. Aite’s Group analyst Julie Conroy, writer of the report, said that they have seen criminals adjusting tactics quickly in countries using chip based cards.
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So when are you able to expect PIN’s being used for authorization of credit card transactions instead of signature in the US? Conroy does not think it should happen earlier than 2018. She then added that chip readers will already be pretty much omnipresent and everyone should feel much more comfortable with the new PIN technology.
She noted that it could also happen sooner. “In the case of events similar to Target’s breach and online users demanding for the PIN, credit card issuers will respond right away.”