Have Chip-Based Credit Cards Cut Down on Fraud in the U.S.?
- March 1, 2018
- Posted by: Mike Brown
- Category: Credit Card News
In the U.S., retail stores that can handle credit card chip-technology have seen a 70% decrease in fraud since September of 2015.
In 2015, many banks and retailers made the move to chip-embedded credit cards on the heels of several breaches and hacks at major retailers. Currently, chip readers have only been installed in 59 percent of the stores in the U.S. However, those that are capable of handling the technology have seen a 70 percent decrease in fraud from September 2015 to December 2017.
Are Chip Cards Worth It?
The U.S. didn’t jump on chip-embedded technology when it was first introduced. The new method caught on about 10 years ago in other places like Europe, Brazil, and Australia when they started moving away from the traditional magnetic strip credit cards that continued to be popular in the U.S.
The new card method wasn’t pursued in the U.S. at the time it was introduced in other countries primarily because of the cost attached to the transition. Sending new cards to all their clients and replacing terminals wasn’t appealing to companies from a financial standpoint. Even though the chip cards were supposed to be more protective against fraud, companies didn’t feel the benefits were enough to justify the additional costs.
The acceptance of chip cards clearly hasn’t spread like wildfire, even in the last year despite most credit cards having embedded chips. As of early 2016, only 37 percent of stores in the U.S. could read chip cards – and that number had only boosted to 59 percent by the end of 2017.
Although chip cards can be hacked, they are more difficult for thieves to target, which is why retailers who made the switch to chip cards saw such a substantial drop in fraud rates. For every transaction, the chip-embedded cards create a transaction code that is good for only that single purchase. If a hacker stole that code it wouldn’t do them any good because the transaction number wouldn’t be valid for a second use.
But chip cards are also susceptible to having their information stolen online, on the phone, or through the mail.
Even though using credit cards in storefronts became less risky with chip-embedded cards, more people are choosing to shop online now. Online shopping in the U.S. rose 4 percent in a year’s time, from the third quarter in 2015 to the third quarter in 2016.
In recent years, card-not-present fraud has increased – that’s when someone buys something illegally with another person’s credit card online or by phone. There’s not much that chip-embedded cards can do to fight that type of fraud.
What’s Next in the World of Credit Cards?
Chip cards are still a better alternative to help fight fraud than magnetic strip credit cards are, but their importance is actually decreasing. There are other cutting-edge methods ready to become the next big thing in the credit cards market.
Technology and anti-fraud techniques have caught up, and other methods have been developed to help protect security. Mobile payments, contactless credit cards, and biometric credit cards are the newest methods that may become more prevalent over time than chip-embedded cards.
In the meantime, consumers should monitor their bank and credit card accounts regularly for signs of fraud. They should report any unfamiliar or unauthorized charges to their bank or credit card issuer as soon as possible.