Wednesday, July 1, 2015

Strips vs chips: Another way the USA is falling behind

While Europe uses computer-chip credit cards, the US is stuck with 60-year-old strip technology, making us the "Fraud Zone"

Strips vs chips: Another way the USA is falling behind

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My bank stopped my Visa debit card, cutting me off from thousands of dollars of my own savings, when I tried to use it to buy $206 in Septa passes for myself and one of my sons last month. "We're having so much fraud, a $200 purchase is the fraud-protection trigger now, unless you want to waive protection," the customer service lady told my wife.

On the bank's advice, I let them know in advance the days I was traveling to New York and London on work assignments, so Visa wouldn't panic when it showed me charging meals and subway tickets on Broadway and Holborn High Street. Not that it ought to be any of my bankers' business. But that's the price of convenience, these days.

But only in America. When I visited Commerce Bank founder Vernon Hill's new Metro Bank Plc and its rivals, the English told me they don't have a notable card fraud problem -- because they use cards armed with tough-to-fake computer chips, not the 60-year-old American-style card-strips that thieves now find so appealing.

The strip was a marvel in its day. According to Janney Capital Markets payment analyst Len DeProspo, the familiar card was invented in 1960 by an IBM developer on a US Government project, whose wife suggested attaching the medal coding panel to a plastic card with a clothing iron so it could be easily red through a metal plate tied to a landline phone.

But strips today are as outdated as the internal combustion engine or Microsoft Windows - kept alive, at great inconvenience, through social and business inertia and an unwillingness to pay for improvement.

"Since 1960, we have sent men to the moon, discovered vaccines (to stop childhood diseasees), and created the Internet, yet we are still using technology that puts our entire financial lives, and identities, at risk every time we use a payment card," DeProspo told me.

"In order to have chip and personal-identification number security on cards, you have to retrofit or get new terminals" for millions of merchants, at a cost the card companies estimate at somewhere north of $8 billion, DeProspo added. "There was an estimated $3.5 billion in fraud in 2009, so theoretically, updating the system to chip plus PIN would pay for itself" in a few years.

But banks don't want to pay. Merchants don't want to pay. Visa and MasterCard sure don't. Nor do fee-averse US consumers, or their friends in government. So, "since Europe has more secure cards, fraudsters are now focusing their attention in the U.S.," DeProspo concluded. When Europeans come here, they have to get strip cards, and "enter the Fraud Zone where the risk of theft is much greater."

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About this blog

PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com, distefano251@gmail.com, 215.854.5194 or 302.652.2004.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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