Friday, August 21, 2015

Computer Chip Credit Cards – What it Means for Credit Card Security

Have you ever received a call from Visa, American Express, or another credit card company telling you that your credit card information was hacked and your card is being cancelled while new replacement cards are sent? I have, and it can be a hassle resolving the fraudulent charges and waiting for a new card. And it’s an even bigger hassle for the credit card company who has to track down where the card was used to try to get the money back to minimize their losses. However, due to new technology, the amount of fraudulent charges will be drastically decreasing. By the end of 2015, US financial institutions will have distributed more than 600 million chip cards—a credit card with a computer chip embedded into the card that will increase its security and decrease consumer fraud. A recent article in The Deseret News highlights why the new cards are becoming more popular and what it means for consumers.

The new cards, already very popular in many parts of Europe, are managed by a company with ownership equally split among Visa, MasterCard, JCB, American Express, China UnionPay, and Discover. Because several credit card companies have joint ownership over the new EMV chip cards, unless merchants update their card readers to use chip-enabled devices by October 1st, the merchants will assume liability for fraudulent charges. Therefore, the new chip cards are becoming more and more widely used and will soon be the standard for the country.

The chip cards make it nearly impossible for a hacker to copy the information on the card and then create a fraudulent card. Because of this, the amount of fraud from hackers using fraudulent cards at stores will drastically decrease. However, one limitation of the new cards is that there is no additional security for online purchases. In other words, if a hacker gets the information from your card, they could still use that information to make fraudulent purchases online. Even with this limitation, overall security of the new cards is greatly increased and will lead to less consumer credit card fraud. That should translate into savings for consumers since ultimately they pay when consumer fraud occurs since prices need to reflect those costs.

1 comment:

  1. These chips have been around in Europe for years, but it seems US banks thought the costs were too high vs losses due to fraud. NOW the situation seems to have changed to where it's worth it to them to reduce fraud. No matter what, the customer's loss limit on fraudulent charges is pretty low, the banks eat the rest - so in the end this is (as usual) the banks looking after THEIR money, not yours.