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Why Alternate Payment Schemes Get No Love
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Drew Conry-Murray
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Drew Conry-Murray,
User Rank: Ninja
2/14/2014 | 10:07:55 AM
Chip and PIN will win
Chip and PIN (EMV) is going to win out in the long run, for exactly the reasons you lay out: it won't require a lot of effort on the part of consumers. We're accustomed to PINs already with ATM cards. And as breaches continue to happen, the pain of upgrading to chip and PIN will start to look acceptable to banks and retailers when compared to costs of reissuing cards, eating fraudulent transactions, and so on.


Chip and PIN isn't perfect. As you note, it doesn't do anything for transactions without the card present (like online or phone purchases), but it's a lot better than the system we have now.
Marilyn Cohodas
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Marilyn Cohodas,
User Rank: Author
2/14/2014 | 10:15:34 AM
Re: Chip and PIN will win
Agree, Drew. And it's proven technology in Europe already....
Lorna Garey
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Lorna Garey,
User Rank: Author
2/14/2014 | 10:21:56 AM
Re: Chip and PIN will win
I actually now have an EMV card, but have yet to notice a PoS system that takes advantage. And all that stops is fraud with the physical card. The back end is still wildly insecure. You wrote about PCI how many years ago, and the Verizon report shows not much has improved.

I agree the US will gradually move to EMV. However, is that just a false sense of security?
Drew Conry-Murray
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Drew Conry-Murray,
User Rank: Ninja
2/14/2014 | 10:55:53 AM
Re: Chip and PIN will win
Right, there will be significant effort to upgrade PoS systems, which is one of the reasons for reluctance to move to chip and pin, because that upgrade will be expensive. And yes, the back end is still wildly insecure. However, my understanding is that most of the credit card fraud that occurs is from cloned cards. Chip and PIN prevents the use of cloned cards. Chip and PIN won't end fraud, but it should put a significant damper on it.

If we could move to Chip and PIN, and maybe also work out a robust tokenization method (that is, instead of storing card data, retailers store a token associated with a transaction), we'll have a much more secure back end. Of course, the devil is in the details, and there are a lot of details.
jagibbons
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jagibbons,
User Rank: Ninja
2/14/2014 | 12:43:27 PM
Re: Chip and PIN will win
While EMV will cut down on clone cards, it is still possible. Most data that is used to create cloned cards are gathered via various methods that fall into the skimming category. Once you get access to the data in transit between the customer and the back-end system, you've got everything you need. A different kind of card doesn't really solve that data transit issue.
WKash
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WKash,
User Rank: Author
2/14/2014 | 6:03:49 PM
Re: Chip and PIN will win
I have to agree. What the Target breach taught us is that the vulnerabilities are in the architecture that carries the data, not the cards or EMVs.   

That said, cards that require PINS would have saved American Express $1800 last week, after someone made off with my AMEX card and went on retail buying spree, merrily swiping my card at a dozen stores.  If I hadn't alerted AMEX the card was missing, he/she might have wrung up another $1800 or more in charges. A PIN would have prevented that.  But I'm a happy AMEX customer.  The wiped the charges off my account and sent me a new card.

One suspects its cheaper for them to write off the losses than to get behind a national campaign for smarer card systems that retailers, already unhappy with the percentage card issues collect, are unlikely to pay.

 
Lorna Garey
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Lorna Garey,
User Rank: Author
2/14/2014 | 6:10:03 PM
Re: Chip and PIN will win
Wyatt, AmEx, MasterCard and Visa have to be living in fear that EBay/Paypal, Google and Apple will decide to stop infighting and band together to come up with a simple, secure and widely accepted standard way to implement a mobile wallet. All that's keeping the status quo is fragmentation.

Kurt Marko pointed me to news that Icahn is pushing EBay to spin Paypal out. Interesting times.
WKash
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WKash,
User Rank: Author
2/18/2014 | 12:25:51 PM
Re: Chip and PIN will win
Lorna, you're probably right about AMEX, VISA, Mastercard and other card providers. Pay Pal is probably looking pretty attractive right now to the electonic wallet crowd.  One question though is whether they would guarantee to cover (absorb) fraudulent purchases, the way the credit card companies now do (and promote).

 
Laurianne McLaughlin
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Laurianne McLaughlin,
User Rank: Apprentice
2/14/2014 | 10:51:35 AM
cash is king
Aftre the Target breach, are you using cash more often? I am. I almost feel guilty using my debit card at the supermarket. To Lorna's point, consumers must see an upside in the alternatives.
ChrisMurphy
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ChrisMurphy,
User Rank: Author
2/14/2014 | 11:23:07 AM
Re: cash is king
No, I still use a credit card for nearly everything -- I'm exactly the person Lorna describes, who figures the risk falls on someone else. The only things I can remember paying cash for the past two weeks are a middle school basketball game admission and a parking meter (and more street parking systems around here are starting to take credit).
Lorna Garey
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Lorna Garey,
User Rank: Author
2/14/2014 | 11:37:07 AM
Re: cash is king
The arc of history bends not only towards justice but towards convenience. On Monday, I didn't even slow down at a toll plaza (EZPass can now read at 55 MPH). I no longer need to research new artists; Amazon tells me what I want. Heck, I can deposit a check by taking a photo of it with my phone. Cash is convenient for very small purchases like those Chris describes, but overall, people prefer to use plastic, if only to rack up whatever rewards they get. That 2% back adds up over time.

While I agree chip and pin will help, unless CC providers figure out how to meld convenience and security, the field is open for a disruptive new tech. Just wish I knew what it was ..
jagibbons
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jagibbons,
User Rank: Ninja
2/14/2014 | 12:46:15 PM
Re: cash is king
As Chris states, as long as the risk lies with the retailer or the bank, there's little incentive to use cash. If your wallet with a credit card in it is stolen, you're inconvenienced while you call to cancel the card and wait for a replacement. If your wallet full of cash is stolen, you're flat out of luck.
bwalker970
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bwalker970,
User Rank: Strategist
2/14/2014 | 2:07:43 PM
Re: Chip and PIN will win
What glares in the grocery line?  Many people pay for groceries with a debit card which, surprise, requires a PIN. So the complexity of a chip and PIN transaction is no more involved or inconvenient than a transaction involving the debit card purchase.  It's actually more convenient than writing some semblance of your signature on a digital touch screen.  Now there's security for you.  Not only does the POS device capture all of the data necessary to clone your credit card, it also captures a copy of your signature and possibly the pen motions that you use to write that signature.  In the end, the credit card issuers are not on the hook for any fraudulent activity because they simply pass on all of the excpenses to consumers. So, all of us pay for the fraud because the credit card issuers and retailers are too lazy to replace an ancient and decrepit payment system that is in desperate need of replacement.

The argument for convenience is just a diversion.  The real argument is who is going to pay for the transition that everyone knows needs to occur.
Lorna Garey
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Lorna Garey,
User Rank: Author
2/14/2014 | 2:17:28 PM
Re: Chip and PIN will win
bwalker, I was talking about new electronic cards like the one I saw on the news segment. There's no way in a zillion years I would use a debit card linked to my bank account.

Absolutely we all pay for fraud - but at some point, does it make sense to spend a lot as an ecosystem on chip and pin POS systems when they supply only incrementally more security than what is in place now?
bwalker970
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bwalker970,
User Rank: Strategist
2/14/2014 | 5:55:41 PM
Re: Chip and PIN will win
Two falacies of your argument are that convenience always trumps security and chip and PIN only offers "incremental" improvements over magnetic strips.  The latter assumption is disproven by the relative black market values of PCI-based and EMV-based credit cards on the black market.  A simple credit card with just a magnetic strip is nothing more than a series of numbers.  Capture the numbers and you have everything you need to clone the card and make transaction against the account.  The chip on an EMV card generates a unique token for each transaction which prevents replay of the transaction for other purchases.  That makes EMV cards much harder to clone.  

Your other assumtion is that EMV cards are less convenient.  A transaction with an EMV card is different but it is no less convenient than signing a receipt but certainly less convenient than making a small purchase at a retailer that does not actually care if you are authorized to make a purchase with the card.  If you are concerned about making purchases with a debit card, have you considered the risks of withdrawing cash from an ATM machine?  Chip and PIN also makes ATM machines resistant to card skimming without any additional inconvenience for users.

A system is only as strong as its weakest link.  Fixing the lack of security on the front end does not preclude fixing the infrastucture problems on the back-end.  There are lots of excuses but few actual doubts about the need to replace the antiquated card payment system in the U.S.  The money will be spent.  The only real questions are who will pay for it and when.
Lorna Garey
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Lorna Garey,
User Rank: Author
2/14/2014 | 6:06:23 PM
Re: Chip and PIN will win
I didn't say (or mean to imply) that EMV cards are less convenient. I have one, and it's no different from using any card. The cards I am disussing are these:

http://www.coindesk.com/bitcoin-exchange-mt-gox-adds-extra-security-one-time-password-card/

Not sure where you shop, but I promise you, an OTP card is jamming up the line at my local market.
hhendrickson274
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hhendrickson274,
User Rank: Apprentice
2/17/2014 | 5:08:18 PM
Re: Chip and PIN will win
Chip and PIN has been proved to not be as secure as many believe it to be.  The current specification allows for modes of operation that allow the easy use of skimmer devices inserted into the IC card slot that are nearly impossible to detect unless you take the device apart.

http://krebsonsecurity.com/2012/09/researchers-chip-and-pin-enables-chip-and-skim/
dandrick601
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dandrick601,
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2/20/2014 | 2:02:09 PM
Remeber the customer
Great comments all on the pros/cons.  I had this exact conversation with large bank IT exec last week.  And being a former bank fraud manager I know that you can't eliminate fraud, only minimize it.  EMV is a start, but we both agreed that tokenization schemes that work for POS and card-not-present will be required.  The question is will they be "easy" AND "cost effective"

The reason I liked the original article is because of the "spot on" view that customer mass adoption will require something easy.  That's why it hasn't changed yet - easy hasn't trumped the cost.  Ultimately, consumers pay the price for fraud - banks and merchants pass that "cost" along as part of doing business.  Customers don't really see that cost though.

 


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