U.S. Gets Chance To Catch Up On Credit Card Security

by Mercator Advisory Group 0

The market opportunity for smart cards is reaching the popular press. While the statement below is technically true (i.e. we are the last), it does gloss over the fact that the U.S. was among the first major markets to be essentially wired for online transaction authorizations.

The United States is the only developed country still hanging on to credit and debit cards with those black magnetic stripes, the kind you swipe through retail terminals. The rest of the industrialized world has switched —or is in the process of switching— to “smart” chip-based cards.

That being said, there are plenty of good reasons to make the switch now, as Visa’s recently announced initiative confirmed:

Visa’s move comes as industry experts are warning that U.S. merchants are set to become targets for fraudsters in other countries where payment systems already have tighter security. Since counterfeit magnetic-stripe cards are now difficult to use in other countries, these criminals will probably ship the cards to the U.S.

That prospect is especially worrisome now that Mexico and Canada, are adopting smart cards, experts say.

“There’s already evidence that that type of channel for fraud is increasing in the U.S.,” says Sullivan.

The U.S.’s status as a holdout has also started to cause problems for travelers. While most European stores and restaurants still accept magnetic-stripe cards, Americans are finding that their credit cards don’t work in European automated kiosks, like the ones that sell tickets for the Paris Metro. Some U.S. banks, like Wells Fargo, have started issuing smart cards to customers who travel abroad.

As smart cards begin their long rollout in the U.S., it will be important for all stakeholders to avoid “silver bulletitis,” the natural tendency to overhype the fraud control benefits of a new technology. Smart cards will certainly make a dent in counterfeit-driven fraud. Unfortunately, there are plenty more venues for criminals.

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