Push to replace “hugely insecure” credit card system in U.S after rash of retailer breaches

The ‘magnetic stripe’ credit cards used by American banks should be replaced with the more secure chip-and-PIN systems standard in Europe and around the world – and the recent data breaches suffered by Target, Neiman Marcus and other retailers should be a ‘wake-up call’, according to JP Morgan’s CEO and other security advocates.

Ed Mierzwinski of the U.S. Public Interest Research Group says that the breach has captured public interest in the security of their  cards, according to a report by Philly.com, and says that he believes it may catalyze change,”Congress has begun to ask questions,” he said. He describes the current system as viewing fraud as “just a cost of doing business.”

“This cyber-security stuff we’ve now pointed out for a year is a big deal. All of us have a common interest in being protected, so this might be a chance for retailers and banks to, for once, work together,” said JP Morgan CEO Jamie Dimon, according to Business Day Live’s report. Visa and Mastercard have also called for change.

Last week, Dimon described the breach as a “wake-up call”. JP Morgan is the world’s largest issuer of credit cards, according to USA Today’s report, and replaced two million cards in the wake of the breach.

The U.S. accounts for nearly half of the world’s $11.3 billion fraud losses on payment cards,, according to the Nilson Report, an industry newsletter.

“The absence of EMV cards and terminals in the U.S. contributes to fraud losses. Adoption of EMV at the point of sale is the strongest defense against counterfeit cards,” Nilson wrote.

In a detailed guide for consumers concerned over the latest breaches ESET’s Lysa Myers writes, “Have you used a credit or debit card in a store in the last three months? If you’re like me, you have, possibly numerous times. If so, you should check all of your credit and debit card accounts today to make sure there have been no fraudulent charges.” Myers offers advice for holders of cards with and without PINs.

EMV terminals take various forms, but cards equipped with the technology are far more difficult to clone, according to Forbes. In Forbes, Adam Tanner points out that even North Korea outpaces America on card security.

“Magnetic stripe card technology is outdated at best––predating the floppy disk by only a year––and hugely insecure at worst,” CNBC commented in a video report on the breaches afflicting American retailers.

Yahoo News UK’s Finance Editor James Andrews says that Europeans find America’s position puzzling, “Despite inventing the credit card, the US has generally lagged behind the rest of the world in finding new uses for plastic. The British invented the ATM in 1967 and the French have had smartcards and PIN verification since 1992.”

“Chip and PIN isn’t perfect, but has led to a big reduction in card fraud in the UK and made card cloning and skimming far harder.”

Describing America as an ‘island’ in a world of EMV or ‘Smart Chip’ cards, CNBC pointed out that not only Europe, but also emerging economies use the more secure EMV system.

Magnetic stripe cards have been used for more than 40 years, having been patented in 1969, speeding up a credit-check process from “minutes” to “seconds” – previously, retailers had to manually check card numbers against a book of “bad” cards issued each months, according to the system’s inventor, Ron Klein, as reported by Yahoo! News.

Gartner analyst Aviva Litan wrote in a blog post, “Bottom line: it’s time for the U.S. card industry to move to chip/smart cards and stop expecting retailers to patch an insecure payment card system.”

Smart Chip cards are not immune to fraud – but the PIN codes and ‘Smart Chips’ makes many forms of card fraud more difficult.

“While the Target breach is serious, consumers divulge the same information every time they hand their card to a waiter in a restaurant,” said Paul Schaus, president and CEO of CCG Catalyst Consulting Group, in USA Today‘s report.

 

Author Rob Waugh, We Live Security

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