Are New Bank Chip Cards Safe? Experts Aren't So Sure

woman hand holding credit card...
By Brian O'Connell

NEW YORK -- U.S. credit card customers are about to experience a new card technology their peers in Europe have used for years -- new, so-called "chip" cards that promise greater security for card consumers addled by recent security breaches.

But are the cards as safe as some banks and card carriers claim?

Banking industry professionals say so. On a recent segment on NBC's Today Show, a MasterCard spokesperson claimed that the new EMV cards have slashed fraud breaches by 80 percent in Europe and Canada.

Yet some card security experts take issue with the claim. In a recent statement, the Arlington, Virginia-based Retail Industry Leaders Association says that banks are only taking "half-steps" by rolling out chip cards that "are still more fraud prone than cards issued elsewhere in the industrialized world."

Why? The RILA say other safer credit cards, like those used by European consumers are both so-called chip and PIN cards, and aren't ones that rely strictly on signatures, like the chip cards inching onto the marketplace in the U.S. right now. U.S. chip cards "do not provide the added layer of security for cardholders that exists in other countries," RILA states.

The group says that U.S. consumers shouldn't rest easy until card carriers and banks answer three critical questions about new chip card security:
  • Why aren't new chip cards being issued with an accompanying PIN if it's the smartest and safest technology available?
  • Why, if "chip and PIN" has been successful across the globe in reducing fraud, would we implement a less secure standard for American cardholders?
  • Why are banks and card networks willing to make the added investment in security in other countries but not here in the United States?
"Banks and card networks continue to gloss over the fact that the cards they are issuing in the United States are inferior to the same products they offer in the rest of the industrialized world," RILA states. "It's time for them to honestly answer these questions."

For their part, consumers aren't taking the same harsh stance as industry retail groups. For instance, Americans overwhelmingly believe the EMV chip (41 percent) is more secure on credit cards than the "magnetic stripe" (5 percent), while 20 percent feel both are equal when it comes to credit card security, according to data from NerdWallet. But Americans are less sure who will be held liable in the event of a major security lapse, NerdWallet reports.

%VIRTUAL-pullquote-Chip cards, while nice in theory, aren't as safe as banks would have us believe.%Thus, the rather significant layer of uncertainty covering the chip credit card issue.

"As the Eagles once said, you can't hide your lying eyes," says Michael Bremmer, chief executive officer of Orange County, California-based "Chip cards, while nice in theory, aren't as safe as banks would have us believe. A quick Google or YouTube search for 'app to hack a chip card' shows I can purchase an app for my Android device, or just watch a video, to easily trigger a hacking situation."

"Obviously the banks are aware of this and are taking steps to fight back, but this is an ongoing game of cat and mouse," he adds.

Others say there is some good news, and more bad news, linked to the new chip cards. "In chip cards, the card number or [primary account number] is sent to the card reader along with a unique digital signature," says Rahul Ray, founder of Burr Capital, in Edgewater, New Jersey. "But the two-form identification is a vast improvement over legacy mag-stripe cards. That said, it suffers from a few issues. The PAN, or card number, is still unencrypted, making it a vastly inferior solution to the newer 'tokenization' technology found in ApplePay."

By and large, financial industry security experts believe the card industry stopped one, critical step short with the new chip cards -- and will face an uphill climb with retailers and consumers as a result. "The new chip cards are definitely safer than the former standard cards with the stripe," says Amanda E. Cioban, a certified public accountant at Manada Tax Service, in Lancaster, Pennsylvania. "However, the new American banking law falls short in not requiring a chip pin card. The regulations call for the cheaper less secure alternative of chip-plus signature cards. This level of security still puts the United States behind Europe and Canada in the prevention of credit card fraud."

As banks may well find out to their own detriment, being behind the eight-ball is never where the U.S. consumer wants to be.
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