"The US is the top victim location for card counterfeit attacks like this," says the CEO of the Electronic Transactions Association of the recent Target hack. That's in part because US credit and debit cards rely on an easy-to-copy magnetic strip on the back of the card, which stores account information using the same technology as cassette tapes. In most countries outside the US, people carry cards that use digital chips to hold account information. The chip generates a unique code every time it's used. That makes the cards more difficult for criminals to replicate. So difficult that they generally don't bother.
So why aren't we doing something? For one, it can be expensive. And while global credit and debit card fraud hit a record $11.27 billion last year, those costs accounted for just 5.2 cents of every $100 in transactions, according to a Nilson Report. Another problem: retailers, banks, and credit card companies each want someone else to foot most of the bill. Card companies want stores to pay to better protect their internal systems. Stores want card companies to issue more sophisticated cards. Banks want to preserve the profits they get from older processing systems. Credit card companies in the US have a plan to replace magnetic strips with digital chips by the fall of 2015. But retailers also want each transaction to require a PIN number instead of a signature. Banks make more on transactions that require signatures because there are only a few of the older networks that process them, and therefore less price competition. (More Target hack stories.)
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