MasterCard and Visa are setting their sights on replacing the swipe-and-sign credit cards that are currently the ubiquitous system for credit transactions in the United States with a more secure system known as chip and PIN, according to The Wall Street Journal.
The recent personal data breaches at retailers like Target and Neiman Marcus, through which millions of consumers’ credit or debit card information was stolen, have led to a national concern over credit card security.
In response to these concerns, the two biggest credit card transactors in the United States — Visa and MasterCard — have outlined plans to make the switch over to a chip and PIN system in October 2015.
What is the Chip-and-PIN System for Credit Cards?
Chip-and-PIN cards are standard in most European countries, Canada and Mexico, favored for their increased level of security. Cards that utilize the chip-and-PIN system are known as “EMV smart cards.”
The chip-and-PIN system is named for the microchip embedded in the card, which contains security data and is more difficult than the traditional magnetic strip to duplicate, and a personal identification number (PIN) — similar to those currently used for ATM or debit card transactions.
During a U.S. Senate Judiciary Committee hearing Feb. 4, Fran Rosch, a senior VP at security firm Symantec, explained what makes EMV smart cards a more secure option: “Chip and PIN makes it much harder to copy a card when data is stolen, also makes it harder to steal data in first place due to encryption. Also makes physically stealing a credit card less useful, since you don’t have a PIN.”
Lack of EMV Smart Cards Makes U.S. Easy Target for Credit Card Fraud
“Half of the fraud occurs in the United States but only a quarter of the credit card use,” U.S. Sen. Richard Blumenthal (D-Conn.) said in the Feb. 4 hearing. “Something is wrong with this picture.”
When other countries began adopting the chip-and-PIN system, it was often in response to existing credit card fraud. Initially, the United States did not have the same security concerns as other nations, and therefore did not have the incentive to for retailers and credit card companies to invest in the change from swipe-and-sign to chip and PIN.
In an interview with The Wall Street Journal, MasterCard’s EMV expert Carolyn Balfany said that with other markets shoring up their credit card vulnerabilities with the use of EMV smart cards, the United States became the easier target.
“What has happened since then is that as other markets migrated to EMV and became more secure, fraudsters migrated their activity to markets with less security,” she said. “We saw fraudsters move over to the US market — they are looking for the path of least resistance.”
Whatever the costs might be to make the switch to EMV, however, consumer advocates argue that now is the time to do it. “We need a strong commitment from all stakeholders to adopt this technology sooner rather than later,” said Delara Derakhshani of consumer advocacy group Consumers Union, in a statement made in the senate hearing.
“We believe it is money well-spent, and it is a penny-wise pound-foolish philosophy to wait any longer, particularly when the burden of guarding against harm following a breach falls most squarely on the shoulders of innocent consumers whose data was compromised.”
Photo credit: Ciaran McGuiggan (via Flickr)