In an attempt to bolster security against credit card fraud, the United States is moving away from the traditional magnetic strips on credit and debit cards, to versions with tiny computer chips embedded in them. Such cards have already been used in Europe for two decades, but have been slow to make it to the US. However, due to the recent surge of data breaches at Home Depot, Jimmy Johns, and most recently, JPMorgan, companies are making the switch a priority.
Many big banks and credit unions have chosen to issue the new cards to bank customers as current cards expire. Cards with chips will also include a magnetic strip so they can continue to be used at stores that do not have chip readers. While officials agree the new cards won’t completely stop data breaches, the new technology limits the ability of criminals to use stolen information to create counterfeit cards. Julie Conroy analyst at Aite Group says,
…there is no technology that will wipe out all fraud…” but in regards to the Target breach, “[Chip technology] would have significantly impeded the criminals’ ability to monetize the breach, by making it very difficult to use the stolen data at the point of sale.”
While the demand for higher consumer protection has successfully brought about the new technology, the infrastructure to use the cards is still lacking. While a few large retailers, such as Whole Foods and Costco, have adopted payment terminals that can process the cards, many other US retailers have been slow to adopt the systems. Large stores are projected to have chip readers installed by October 2015, due to a shift in fraud liability from card-issuers to merchants. As explained by Carolyn Balfany of MasterCard in The Wall Street Journal,
…what will change is that if there is an incidence of card fraud, whichever party has the lesser technology will bear the liability.”
However, as with everything, there is a cost. The new infrastructure for the technology could potentially cost $8.6 billion or more. The burden will fall on card issuers, for whom the new cards will cost around $3-5 to issue, as well as merchants, who will have to upgrade their systems. For this reason, many question the returns on such technology as developments in technology rarely fully deter criminal activity. Rather, criminal activity tends to rise to the occasion.
While it is clear new innovation is needed in order to protect consumers from mounting risks of data breaches, the movement from traditional strip cards to the new chip replacements comes at a cost for both issuers and merchants.
Read more here- “Chip and PIN: No Panacea, but Worth the Effort- and the Cost,” (Taylor Armerding, CSO)