While Target chief financial officer, John Mulligan, continues to apologize for the Target data breach that compromised some 40 million credit cards and the personal information of 70 million customers, the public and government officials continue to discuss new ways to combat credit and debt fraud. Experts suggest the solution might include chip and PIN cards.
What do officials suggest?
The most common solution, which was suggested in testimony this month on Capitol Hill, is “chip-and-pin” cards, which are credit cards and debit cards with an embedded microchip stored in the card which holds information about the card holder, card number, and expiration. If the chip and pin system is implemented consumers would simply enter PIN codes to verify their identity rather than swiping the cards and signing for the payments.
Chip and PIN cards offer better protection by allowing information to be encrypted on the chip. They are also more difficult to counterfeit, leading to high declines in fraud, especially in Europe where they are already in use. With the recent spate of fraudulent activities the credit cards companies have imposed an October 2015 deadline for the transition to chip and PIN cards in the United States. If the deadline is not reached the major creditor card companies, such as Mastercard and Visa, have threatened not to accept liability for fraudulent transactions.
Stalling implementation of Chip and PIN cards
Delaying the implementation of the chip and PIN cards has always been about costs. The cards cost anywhere from six to eight times as much to make as the traditional magnetic-strip cards. But there are also additional costs to personalize the card. In total, industry experts suggest the cost of manufacturing a payment card could increase as much as 340 percent. That might sound like chump change, but with costs as high as $3.40 per card, times an estimated one billion cards, the additional costs could be over $1.7 billion.
We all know who will pay for the costs. Even if the financial institutions absorb the initial outlay of money to make the new cards, all costs eventually are passed down to the consumer.
What is the cost to the retailer?
Costs do not stop with the manufacturing of the new card. Retailers will also be expected to install new point-of-sale (POS) systems that can handle chip cards. Target has already committed to spending an estimated $100 million into switching to chip-enabled technology. Other firms will also have to follow suit. The costs for the retailers could be as high as $300 to $600 for each new POS system.
We can also expect several major card makers to benefit from the changes including three European ventures: Gemalto, Oberthur Technologies, and Giesecke & Devrient. The United States also has several companies who will profit if the new cards are implemented including CPI Card Group and Perfect Plastic Printing.
So while the chip and Pin cards will eliminate the proliferation of POS fraud activities, experts note that consumers must continue to vigilantly protect their cards, especially when making online transactions.
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