The fraudsters, phishers, hackers, and pickpockets who thrive off payment card fraud may soon have their work cut out for them. U.S. financial institutions have announced plans to add computer chips to their debit and credit cards in the next few years, a move likely to make payment card fraud more difficult. Compared with the magnetic-stripe payment cards carried by millions of U.S. consumers, the new chip cards will offer stronger defenses against fraud. But they certainly will not put an end to it.
In fact, as countries around the world have adopted computer-chip cards, new trends in fraud have emerged. France, the Netherlands, and the United Kingdom all switched from magnetic-stripe to computerchip payment cards, with mixed results. The fraudulent use of lost and stolen cards declined in both France and the United Kingdom. But fraudsters soon shifted tactics and exploited other weak links in payment card security. In the United Kingdom, the eventual success at responding effectively to new trends in fraud depended, in part, on a system of fraud data collection and monitoring that is lacking in the United States.
This article examines how computer-chip cards work differently from magnetic-stripe cards, describes the security improvements offered by the chips, and reviews their mixed track record at defeating fraud in other countries.