For a number of reasons, credit cards are becoming an increasingly more popular form of payment for consumers. With its popularity rising, so has the amount of credit card fraud in the United States. This is partially due to new credit card technology that has not been adopted yet, making the United States one of the most vulnerable and attractive countries for credit card fraud.
October 2015 will be the beginning to the end of credit card fraud as magstripe credit cards are ruled out and replaced by EMV Chip & Pin technology. Before we get into more details, let’s learn about the history of the credit card and magstripe in the United States.
The concept of a credit card dates back to the late 1880’s in Edward Bellamy’s novel “Looking Backward”. Although his concept isn’t actually what a credit card is like today, Bellamy referred to a “credit card” as a card for citizens to spend their government dividend.
It wasn’t until 1921, when something more similar to our current credit card was developed. Charge cards were a concept produced by Western Union, where several companies could accept each other’s cards as a form of payment. An example of this was a gas card, where oil companies could use these cards to sell fuel to automobile owners.
Air Travel Cards, Diners Club, Carte Blanche and the American Express.
In the 1930s, Air Travel Cards were created. Consumers could buy flights and pay for them at a later date against their credit while receiving a discount at the accepting airline.
Ralph Schneider and Frank McNamara developed the first general-purpose payment card called the “Diners Club”. This was then followed by Carte Blanche, and later in 1958, American Express created the worldwide credit card network.
During the same time, Bank of America launched BankAmericard, which became the first successful modern credit card. By 1977 its name changed and Visa was born.
In 1960 however, prior to the creation of Visa, an IBM engineer by the name of Forrest Parry was developing a new ID card for the CIA. His idea was to have a tiny amount of data stored on each ID card in a half inch wide piece of magnetic tape. The first iteration was actually scotch tapped to a plastic card. When that turned to be unfavorable, Parry’s wife tried ironing the magnetic strip onto the plastic card which bonded the two materials, thus creating the magstripe!
Magstripes were quickly adopted by credit card companies to store all the information needed to conduct a transaction: account number, expiration date, and the CCV code.
50 years later, counterfeiters and scammers have developed an expertise in stealing this valuable information – 2014 being the year of the breach.
With new initiatives to retire the magstripe in the United States, this mastery of credit card fraud will come to an end. Some experts believe that by 2020, magstripes will be hard to come by.
A more modern credit card technology has been around for years and in light of recent credit card breaches; the US will finally adopt this technology. This card technology, the Europay, MasterCard and Visa Chip and PIN has logic in it that prevents fraud experts from copying and stealing cardholder data.
To put things into perspective, since the UK deployed EMV card in 2004, overall card fraud fell by a huge 32% by 2011 according to the UK Card Association.
As more customers and merchants adopt new technology, it will be harder and hard for fraudsters to steal customer data.
Not only do we have the power to prevent fraud by adopting new tech, Visa and Apple are investing in new payment tech initiatives that should make payments easier to make, safer and secure.
This wont necessarily mark the absolute end for credit card fraud, but the death of the magstripe will be a huge step forward.