When will the US have secure credit cards?

OK, secure is a very relative term, but the theft of Target’s credit card data shows how critical the need for better security really is. That one data loss affected nearly one third of all Americans financial and/or personal information and put the idea of more secure credit cards squarely in focus. Target’s response is to accelerate the release of chip-based credit card technology that has been in place outside of the US for many years.

Great to hear, but why is Target the only one doing anything about credit card security?

It’s a matter of cost

That it hasn’t happened is tied to the problem of cost — cards with chips and PINs are ten times as expensive to produce and what’s more, vendors need to upgrade the technology to accept them. No one wants to incur the cost of new cards or new terminals if the other side isn’t going to do the same. It’s a security standoff.

While the personal cost is very high, the cost to retailers is not. According to CNN, merchants have incentives to keep the status quo regardless of the cost to their customers:

The problem is that banks and credit card companies have little motivation to change the current system, said Anisha Sekar, who reviews credit cards for finance site NerdWallet. Financial institutions earned $41.2 billion from credit card swipe fees last year, according to advisory firm Sonecon. Meanwhile, they lost just $5.33 billion to fraud, according to payment industry newsletter The Nilson Report.

When the cost prevents a change, the solution will more likely be found in regulations that protect the consumer from a very, very painful kind of fraud.

Losing the edge

The bigger problem is the potential lag in technology that would make buying much easier and less costly in the long run. Countries that have the chip and PIN technology already are further along in making the move to mobile payments. In Canada, 75% of payments are made with contactless payment methods where in the US, that number is closer to 2%. That’s not a surprise when you consider Canadians haven’t been signing a credit card receipt for years. It’s a seamless transition for them and that puts Canadian companies at a distinct advantage when it comes to this about-to-explode market.

While cost is the reason the US hasn’t made the switch, this is very short-term thinking in a global world where the technology and services can come from anywhere.