"Plastic Surgery" by Bill Saporito
TIME magazine
February 10, 2014
http://business.time.com/2014/01/23/the-stripe-on-your-dedit-card-is-a-massive-achilles-heel/
(The article online is slightly different from the one in the magazine.)
The credit card technology used in the United States (a magnetic stripe) isn't as up-to-date as what is currently used in Europe and the rest of the world (a microchip and a PIN number). In other countries, transactions are authenticated by scanning the chip in the card and then having the purchaser punch in their PIN code. The credit cards here are more susceptible to hackers because they rely on 40-year-old technology. The information in the magstripe can be stolen by malware because it is not encrypted (the information in a chip-and-PIN card is). Annually, American credit-card fraud adds up to about $5.5 billion. The use of chip-and-PIN cards could greatly reduce this amount. Why, then, haven't our credit card issuers made the switch?
I think the main reason we still use magstripe cards in America is that the cost of replacing every card is very high. It costs the card issuer about $3 to produce and mail out one chip-and-PIN card. Replacing every magstripe credit and prepaid card would cost over $15 billion. On the other hand, credit-card fraud costs about $5.5 billion each year. Credit card issuers evidently seem to think that losing money to fraud is a better decision than replacing all magstripe cards with chip-and-PIN cards. This ties in to what we are learning in class because it shows how our market economy is based on every person or business making choices to benefit themselves. The credit card issuers are sacrificing better card security and reduced card fraud in order to save money.
If all magstripe cards did end up being replaced with chip-and-PIN cards, America's retailers would also have to adjust their method of scanning credit cards. (Chip-and-PIN cards require a different sort of scanner.) A shift in the type of credit cards used would mean an overhaul of businesses' methods of accepting credit cards.
I believe that despite the cost involved, credit card issuers should begin making the switch to chip-and-PIN cards. I think it should be done over a period of several years so that the cost to the card issuers is more manageable and so that people have time to get used to the change.
That is very interesting Meredith! I wonder why our country has not made the switch yet. Maybe and hopefully later on our credit cards will be changed.
ReplyDeleteWHOA! I had no clue that America used a different type of credit card than the rest of the world. I always thought that I was able to use my credit card in other countries, but I guess I have just not traveled far away enough to test it. Even though it would be a lot of work and money to transfer all magstripe cards and scanners to Chip-and-PIN cards and scanners, I think it would be worth it. In the long run there would be a reduced fraud rate, which is always a plus. Thanks for sharing this fascinating news, and I completely agree with what you were saying.
ReplyDeleteYou're absolutely right, Meredith! I really have to thank you for enlightening me on this subject, for I never realized this! I agree that we should switch over as a whole, because even though, yes it would cost to make the change, in the end, it would be worth the money. All the fear in America today about credit card theft would dissipate and we could live without fear. 5.5 billion dollars is quite a lot of money, and our nation is so far in debt, it's not even funny. It would be quite worth it, overall, to make the change.
ReplyDeleteI have recently heard of this topic on the news as well, and I was shocked by how much money is stolen. I believe --instead of making an immediate switch-- companies should start buying scanner and pins and use both as an option. In the meantime, companies will START making the "common card". After enough of the population in a community has the new card, then the mag strip scanners and cards can slowly be removed. Very informative and great post!
ReplyDeleteI had no idea that America uses a different type of credit card. It is interesting because we seem to have that same issue with many things like the metric system. If we ever do make the switch, I suspect it should and will be gradual as you say. We should make them the same in order to make international transactions better handled.
ReplyDelete