Many savvy credit card consumers like “chip and PIN” cards — cards that don’t just have a magnetic strip (or, don’t even have a strip if they aren’t being used in places like the U.S.) but offer an embedded “EMV chip” that contains encrypted card information.
It’s more secure, and credit card security has been all over the news, leading folks to wonder what these savvy card consumers have been asking themselves for a very long time, why is the U.S. so backward? When the rest of the world has been using EMV chips in their credit cards for years, why do so few US cards feature those chips? And when a bank finally brings out chip cards, why are they “chip and signature” (you can scan the chip and then sign the slip) instead of “chip and PIN” (where you enter a PIN code rather than signing)?
If you travel to Europe and elsewhere it can be helpful to have a card with an EMV chip, restaurants and stores generally can swipe your magnetic stripe but it’s not common and you stand out as a tourist when asking them to. And yes there are unmanned kiosks where a chip is needed, and even stories about a default PIN not working.
But cards with an encrypted chip and a magnetic stripe, where folks just use the stripe, are still insecure.
So what’s up with that?
Todd Zywicki offers an answer.
- The US is a higher-trust country with lower fraud risk than areas of the world where chip cards became prevalent. The security was more necessary there.
- Fraud is a big problem here too, but it isn’t existential. Estimates of potential fraud savings are $1 billion to $5 billion annually.
- Credit card use is more common in the U.S., cardholders have more cards per person as well (many of my readers would know about that!). And chip cards are more expensive to produce. Replacing existing US cards with chip cards would cost $5 billion to $10 billion.
- That doesn’t account for consumer annoyance at switching, or the cost to retailers of buying new machines. Retailers have just had good success in suing merchant networks recently, imposing huge new costs isn’t something merchant networks and banks are looking to force.
- An issue specific to debit cards, while Dodd Frank’s Durbin Amendment allows banks to build the cost of recovering fraud into their free structures, it likely precludes card issuers from incorporating the cost to issue new chip cards into their fees. So there’s a legal bias against switching debit cards.
None of which is to say chip and pin cards won’t eventually reach the U.S., only that it’s entirely understandable why they haven’t taken hold here they way they have in Europe. Which is no solace when you’re trying to buy a train ticket from an unattended kiosk somewhere across the Pond.
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