Chip and PIN Credit Cards

All credit cards will have a chip and PIN (Personal Identification Number) in the US by October 2015 which other major credit card countries have had for years. The US and some other countries are still using swipe-and-sign credit cards which has caused many problems for credit card users, merchants, and credit card companies.

Some problems with the old and still used credit card system include users writing down their PINs and placing them next to their credit cards to remember, forged signatures, stolen data stored on the magnetic stripe, and counterfeit credit cards. Even though the credit card companies placed the user’s picture on the card a few years ago, the action did not prevent online credit card fraud or fraudulent phone and mail transactions.

If you have visited Europe in the last few years, you have probably noticed that merchants process the credit card transactions in your presence which prevents the cards from ever being out of your control. The cards which the US will also start using soon contain a microchip and require the card owner to enter a PIN number into the payment machine at the point of sale.

The swipe-and-sign system is a rather huge problem in the US when credit cards are taken from customers to be processed in a back room of a restaurant for example. Skimming devices are widespread and they are used at restaurants, gas stations and ATM machines to steal customer PIN and card information.

The new credit card chip and PIN system has a couple of benefits. First, as mentioned the new credit card system which is not so new in Europe and some other countries require the card owner to enter a PIN just like when cardholders are required to enter a PIN to get cash from the bank cash machines. The only difference is that with the new system, all transactions will require a PIN. The way that this is done is that employees usually carry a small machine which processes the credit card transaction at the presence of the customer. Once the card is inserted into the credit card payment machine, the customer is able to verify the amount right there and enter the PIN to authorize the transaction. With the old swipe-and-sign system, cards can be taken away from customers for processing which copies and stores the card information. The problem with this system is that the copied information can then be stolen by business insiders or hackers to create counterfeit cards or complete customer-not-present transactions such as when ordering online, by phone or snail mail.  This is what happened at Target Corporation where hackers stole millions of customer credit card numbers in 2013 by collecting the information stored on the card magnetic stripe at the point of sale. If this were to happen with the chip and PIN credit cards, hackers would not be able to use the card information unless they also had the customer PIN. This is not to say that the new system will be fraud-proof because identity thieves will find a way to also steal the PINs but credit card fraud should be drastically reduced especially after consumers are educated about securing the PINs and changing them often.

One of the reasons that the US is making this huge change is that the credit card fraud cost is now higher than the cost of the new system so most parties involved are willing to undergo the change. Interestingly enough, it is said that the reason why fraud has increased in the US is because the fraud industry migrated from chip and PIN countries to swipe-and-sign countries such as the US simply because they are easier to steal.

Read the full article about the chip-and-PIN credit cards.