Chip and dip – Oops! I meant Chip and Pin Technology

Credit Card Chip

Back in 2012, I had the opportunity to sit in on a webinar hosted by American Banker called “The End of the Magstripe? The State of EMV SMARTCARDS in the U.S.”.  Due to the rise in credit card fraud in the U.S., the webinar discussed in great detail the EMV Smartcard technology widely used in Europe as a successful solution to credit card fraud. This technology has reduced credit card fraud in the rest of the world, so much that they were no longer accepting the American magnetic strip credit card.

I personally have been a victim of identity fraud (and frankly who hasn’t) so I was very interested in this topic. Back in 2005, American Express was hacked at their payment processing center. They were able to obtain my credit card information and proceeded to distribute that information across the country. American Express called me to verify that my card was still in my possession, which it was. JC Penny also confirmed that I had ordered two sets of hundred $100 gift certificates via American Express. At that point, I checked my statement to find that there were a variety of unauthorized charges on my account. I filed a complaint with my local police and alerted the credit bureaus. Also, as a precaution, I cancelled all my other credit cards and had them replaced with new ones. As this was a minor inconvenience for me at the time, it could have been a whole lot worse.

What is EMV Chip Credit Cards?
EMV chip card transactions improve security against fraud compared to magnetic stripe card transactions that rely on the holder’s signature and visual inspection of the card to check for features such as hologram. The use of a PIN and cryptographic algorithms such as Triple DES, RSA and SHA provide authentication of the card to the processing terminal and the card issuer’s host system. (Wikipedia)

The initial opposition to this technology by the banks and retailers was the cost. Banks are currently spending about $8 Billion and merchants need to spend about $25 Billion to utilize this technology.

The banking industry’s resistance only made the criminals more eager to move their operations from Europe to the more fraud-friendly U.S. Credit card fraud in the United States is dramatically higher than the rest of the world.

I personally, am thrilled to embrace this new technology if it means I will reduce my chance of becoming victim to identity theft again. I am all in. Please sign me up now. The banking industry has now begun to issue these new chip cards but not fast enough. I personally had to request my chip America Express card and my chip debit card from Amex and JP Morgan Chase. I was so gung ho to get on the road to worry free shopping.

Only 23% of debit and credit cards will be replaced by the end of 2015, according to Javelin Strategy & Research estimates. Most banks plan to replace prior to expiration dates, so most cards won’t be replaced until 2016 or even 2017.

I proceeded to begin using my new chip enhanced American Express card and Debit Card with less than stellar results. My first transaction using my American Express card went through with no problem. When I tried to use my chip debit card it was an epic failure at Walmart, CVS, and Duane Reade. They had the new payment processing terminals with the chip feature but it had not been activated. I informed the store clerk that this was a much safer way to process my purchases. The clerk just shrugged and said “Whatever”.

But is this new technology really safer? Not really, because the U.S. is adopting the chip and sign instead of the chip and pin version of this technology which is significantly much safer. The chip and sign does not pair each card with a unique PIN (like the rest of the world), we will still be required to sign at checkout. This puts the U.S. at a bigger disadvantage because other countries that have adopted the Chip and Pin since 2005. Hackers will still be able to steal credit card data from the store terminals.

In the long run, banks would prefer to get rid of the plastic credit card with the static credit card numbers all together. They want everyone to move to a one-time-use “tokens” system like Apple Pay or Samsung Pay. This would make them less vulnerable to fraud but it will be a while before consumers will fully adopt this method of payment. It could be even longer for the retail industry to invest even more money into yet another credit card processing terminal. They have yet to fully embrace the chip and sign technology.

I do not want to think about being hacked as a result of my current shopping excursion. I prefer to look forward to a safe and happy shopping experience where my only worry is how long I can shop before I drop.