Credit card technology has evolved significantly from the days of carbon copy swiping machines. The credit card’s most recent facelift in the form of its magnetic strip, however, may itself be outdated. And it’s that magnetic strip that is fraught with problems, as criminals can skim information from the strip, which contains credit card numbers and expiration dates. Fraudsters then take that information to make their own credit cards.
This is what occurs when retailers report of data breaches. Hackers access credit card information that companies have on file from customers who shopped at certain stores within a certain timeframe. One of the largest such breaches occurred at Target in November 2013 that affected up to 110 million customers. Last year, customer credit information was compromised at the restaurant chain P.F. Chang’s. As a result, the restaurant company actually reverted back to the manual credit card carbon copy swiping machines while the investigation was ongoing. Other big merchants that have been targeted include Home Depot, Staples and Dairy Queen.
This year, banks will issue some half a billion new credit cards that feature computer chips that generate unique codes for each transaction from a consumer. This will make it more difficult for criminals to make counterfeit cards, as the information skimmed from one transaction won’t be applicable to the next – without a signature, that is.
The new cards are called chip-and-signature cards. Banks are issuing these new cards as old ones expire, although consumers can request new ones prior to the expiration of their current cards. The card works by being inserted into a point of sale terminal and remains there until the consumer authenticates the purchase with a signature.
However, industry experts warn that this method still leaves consumers vulnerable to fraud, as signatures are easily replicated. Other financial institutions around the world are choosing to use chip-and-PIN credit cards, which require a consumer to input a personal identification number while the card is inserted in the merchant’s terminal.
Some industry advocacy groups are pushing U.S. banks to adopt the chip-and-PIN technology, but they haven’t yet as a matter of convenience to the consumer. It’s much easier to sign for a purchase rather than have to remember a four-letter identification number. Still, if credit card fraud continues to erupt from point of sale systems, consumers themselves might soon be making demands for the PIN technology.