U.S. is Dumb About Smart Cards

The typical US consumer still swipes their card, credit or debit, with those same old black magnetic stripes. And, we hold our breath and hope they work, and don’t lead to erroneous (fraudulent) charges we have to defend. The rest of the world has switched to Smart cards, according to Peter Svensson, The Associated Press, in The Denver Post. “The problem with that black magnetic stripe on the back of your card is that it’s about as secure as writing your account information on a post-card”.

Svensson comments “Smart-cards (chip-based cards) can’t be copied, which greatly reduces the potential for fraud. Smart cards with built-in chips are the equivalent of a safe: They can hide information so it can be unlocked only with the right key”.

This begs the question, why is the US lagging in this technology? How do we re-vamp our system to promote smart-card transactions? Some experts maintain that it is a lack of demand by everyone from consumers and issuing banks to retail establishments. In essence, we don’t want the added security. This, of course, is just a smoke screen to obscure the underlying issue: no one wants to pay for it. Consumer don’t feel like they should pay for the technology (through higher card fees) even if it makes them safer (Haven’t we always been pretty safe?). Banks don’t want to pay to issue higher-cost cards with chip technology (they probably think it is cheaper to weather the costs of fraud – it is not). And retailers don’t want the added expense of new, more sophisticated equipment.

For the sake of a short term buck, all three groups are willing to sacrifice long-term safety, viability and profits. Does anyone else out there feel like America can be embarrassingly short sighted at times?

Smart cards are recognizable by the fingernail-size gold contacts embedded on one side of the plastic. In Europe, rather than turning your card over to a waiter, the waiter presents a wireless payment terminal, has you swipe your card and enter your PIN without ever losing sight of the transaction. The window for fraud drops nearly to zero since you are actively involved in the transaction.

What can you do to help? Let your financial institution know that you value the security of smart-card technology. According to Richard Sullivan, senior economist at the Federal Reserve Bank of Kansas City, in 2006, 9 cents out of every $100 paid by card in the US ended up in the pockets of criminals (and not on the bottom line of the credit card company or retailer). The comparable figure for Spain was 2 cents. Let your bank know that they can save approximately 7% of every dollar they earn (a high ROI for a bank) by catching up with the times.

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John Sileo is America’s leading financial keynote speaker on identity theft and non-technical data security (the human element). His clients include the Department of Defense, Pfizer, Homeland Security and the Federal Reserve Bank. Contact him directly on 800.258.8076 and reference smart cards for more information.

Posted by Identity Theft Speaker John Sileo in Cyber Data Security, Fraud Detection & Prevention, Identity Theft Prevention and tagged Chip, Credit Card, Credit Cards, Financial, Keynote Speaker, Security, Sileo, Smart Card, Smart Cards, Technology.