Last year, over one hundred million Americans had their sensitive financial data breached when they did their holiday shopping at a popular discount store. That is a lot of angry people and they slapped the retailer with at least two class-action law suits.
More criminals are targeting the U.S. for credit card fraud these days. That is because we have been slower to transition to a new, more secure system that Europe and other parts of the world have already embraced. We are beginning to make the change, though, and this may be the most secure holiday shopping season ever.
The “change” I am talking about is the introduction of EMV systems. The term simply means Europay, MasterCard and Visa, and the new cards are referred to as “chip cards or “smart cards.” What makes them smart is the chip that is embedded in them in place of the magnetic strip that older cards have. The problem with the strip is that the data stored there just doesn’t change. That means a crook can get your information when you swipe your card through the reader and replicate it, using it again and again to wish himself a very merry Christmas indeed. The chip, however, generates a different transaction code every time the card is used. If the criminal tries to use the card again, it is denied. EMV cards don’t stop the transfer of data, but they make it harder to profit from the information. You use the card in a different way, too. Instead of swiping it through a magnetic-stripe card reader, you either deposit it into a slot and wait for it to process, or you tap an NFC-enabled device against the reader.
Why has the U.S. been so slow to bring the new technology on board? Part of the reason for our tardiness, no doubt, is the cost associated with putting a reader at every point of purchase and retailers don’t see the value in the investment. Another reason U.S. retailers have not brought the new system on board is that they don’t understand their liabilities. Up until now the card issuing bank has been responsible for fraudulent charges, but new regulations shift some of that financial responsibility to the retailer if he doesn’t have an EMV system in place. The company that saw the huge holiday breach last season faced huge losses through the suits brought against it by irate customers. If the EMV system is in place and a “not-so-smart” card is used in it, the liability belongs to the company that issued the card.
Integrating the EMV system is costly and smaller companies may have a difficult time seeing the importance of making the change. Still, the incidence of credit card fraud has doubled in America in the last seven years. The liability of making reparation for losses incurred by customers after a breach could mean a bleak holiday season for even small businesses. By the end of this year credit card issuers will send out an estimated 600 million smart cards to Americans. We are well on our way to making the change that much of the rest of the world has already embraced, and this season American shoppers may not have to worry as much about fraudulent charges on their cards.