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Could Your Credit Card Be Safer?

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The aftermath of the Target data breach has continued to fuel the conversation around credit card security in the United States. A lot of people think it’s sub-par.

It boils down to technology: In the U.S., you’re accustomed to swiping a card with a magnetic stripe through a card reader, but if you’re traveling in Europe, you’ll see consumers use cards with chip-and-PIN technology. The magnetic strips date back several decades, while cards using chip-and-PIN technology emerged in Europe in the 1990s.

Chip and PIN refers to the microchip embedded in the card that communicates with the payment terminal being used by the customer, who then has to enter their personal identification number (PIN) to complete the transaction. These are also called smart cards or EMV cards (Europay, MasterCard, Visa), which are accepted at 23.8 million terminals worldwide, according to the most recent data from EMVco (fourth quarter 2012). The company says there were 1.6 billion EMV cards in circulation at that time.

Those figures don’t include the United States, because the technology is pretty much not used here. Americans can get EMV cards from some credit card companies, which is helpful if they’re traveling abroad, but the U.S. is behind the times when it comes to accepting these forms of payment. A map from EMVco shows the availability of EMV terminals around the globe, and the only dead spot is in the upper-left corner of the map: the United States of America.

The magnetic strip technology has played a large part in recent data breaches, like the one that hit Target. Hackers infiltrate payment systems to install malware on point-of-sale equipment (that box you swipe your card through at the register), which records the card information. Thieves can then sell that information, which can be used by credit card fraudsters to manufacture fake cards.

This puts consumers in a very defensive position, needing to constantly look out for unauthorized charges on their credit and debit cards. Regularly checking your online statements is an important habit to establish, along with regularly checking your credit reports and monitoring your credit scores, but it would help if there were stronger technologies fighting fraud on the front-end.

The Security Race: Hackers vs. Technology

Hackers are in the business of cracking security systems, so it’s not like chip-and-PIN technology will wipe out credit card fraud, but at the moment, such cards are considered more secure than those with magnetic stripes. Since the technology isn’t a panacea for fraud, merchants and credit card companies have paused at the price of the upgrades. First Data, a global payment processing company based in Atlanta, puts the cost of EMV cards between $2 and $4, whereas magnetic-strip cards cost about 15 cents each.

As far as the cost of upgrading POS equipment, merchants may be motivated by a deadline set by MasterCard and Visa: Starting Oct. 1, 2015, merchants must assume liability for fraudulent purchases, and if EMV cards will cut down on fraud, the cost of changing equipment could offset potential losses.

The U.S. is moving toward the smart card option, but in the meantime, you have to remain aware of current cards’ susceptibility to data breaches. Consumer security very much lies with the consumers themselves, and they must makes several things a priority.  That includes regularly checking your account activity for unauthorized transactions, as well as checking your credit reports, and monitoring your credit scores (which you can do for free using a tool like Credit.com’s Credit Report Card) for signs of identity theft.

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