Come October 1, Americans will be issued new credit and debit cards that will replace their existing cards
Brian Dodge: It is imperative to implement chip-and-PIN technology so that we can prevent fraud
Editor’s Note: Brian Dodge is the executive vice president of Communications and Strategic Initiatives at the Retail Industry Leaders Association. The opinions expressed in this commentary are solely those of the author.
Many people may not be aware, but come October 1, everyone in the United States will be issued new credit and debit cards by their bank or credit union, equipped with a “chip,” to replace their existing cards.
The new “chip” cards are different because they generate a unique transaction code every time the card is used and helps protect consumer data from hackers.
Combined with a PIN number, this new technology has proven extremely effective in reducing fraud in Canada and Europe. Victories against card fraud seem to follow chip-and-PIN cards around the world. Since the United Kingdom made the widespread transition in 2004, retail fraud has fallen by 67%. Closer to home, Canadian debit card users saw a 55% drop in fraud last year.
But so far, the United States remains the only member of the Group of 20 that relies primarily on outdated magnetic-stripe cards, which were created in the 1960s and have been identified as a source of most U.S. data breaches.
While still functional, magnetic-stripe cards don’t offer the same protection as the new cards will. As retailers invest in new and more secure terminals at registers, so too must the card issuers step up in replacing the cards in people’s wallet.
Retailers nationwide have spent billions to replace old “swipe” machines with new chip credit card readers. But having the new cards is not enough.
Banks are only issuing “chip and signature” cards in the United States, a less secure standard as signatures can easily be forged. It has been reported by the Federal Reserve that including a PIN makes a transaction up to 700% more secure. Yet to date, banks are not issuing these cards to American customers.
Banks and card networks have made conflicting statements as to why they are issuing more fraud-prone credit cards to their American customers.
In a Wall Street Journal article this week, for example, a senior executive at MasterCard said that many consumers find it difficult to remember a four-digit PIN number. Anecdotally, this argument seems hard to swallow given that millions of Americans regularly enter a four-digit code to use an ATM machine or to unlock their smartphone.
It is imperative to implement chip-and-PIN technology. Simply put, like water, fraud flows to the path of least resistance. For more than a decade, because of the outdated card here, the United States has been the path of least resistance for fraudsters. If card security remains weaker here than elsewhere around the world, then fraudsters will continue to focus on American business and consumers.
American consumers agree that it’s time for a change as the rest of the developed world has evolved in this technology. In a poll conducted in November 2014, during a year that saw numerous cyberattacks that compromised the security of huge companies, over 80% of American cardholders were supportive of chip-and-PIN technology.
The numbers speak for themselves and that’s why retailers are doing all they can to make sure consumers are protected when they shop. Now it is time for card issuers to step up to the plate and do the same by embracing chip-and-PIN technology.