Home > Identity Theft > Why Americans Are a Huge Target for Credit Card Fraud

Comments 0 Comments

Put yourself inside the mind of a cyber-criminal for a moment. You could try to hack businesses based in any country in the world and steal their customers’ credit card information, so where would be the best place to commit your crime? If you are smart, you will try to penetrate the most vulnerable security systems.

Unfortunately for Americans, the weakest links in the worldwide payment ecosystem are in the U.S., according to Martin Ferenczi, the North American President for Oberthur Technologies. Oberthur is one of the companies leading the development and deployment of more than 1.5 billion smart chip-enabled credit cards.


How We Got Here

Ironically, the U.S. got left behind in credit card technology in part because it was so advanced in communications technology. Data communications costs have historically been very low in the U.S., allowing merchants to affordably authenticate credit card transactions with remote servers. On the other hand, our European counterparts who were facing more expensive communications costs, developed a method of securely authenticating a credit card transaction that didn’t rely on the connection to a central database.

Ferenczi blames the entire industry for a lack of foresight on this issue. For a long time, the cost of fraud in the U.S. was low enough that it just didn’t justify the expense necessary to upgrade the system. But it turns out that it was misleading to predict future levels of fraud by examining historical trends. “The Target breach in 2013 was a serious wake-up call,” according to Ferenczi.

Since the U.S. hadn’t converted over to the newer smart chip credit card technology, hackers started focusing on stealing credit card numbers here. Once stolen, these credit card numbers can be used to create cloned cards with the old magnetic stripe technology. Meanwhile, cloning a card with a embedded smart chip is considered to be much, much harder.

How the U.S. Is Moving Forward

“The migration to chip cards has occurred over many years in Europe and China. More recently, the U.S. decided to move to chip tech, but has been hesitant,” says Ferenczi. Credit card processors and merchants are now moving fast to change over to the new system, but it won’t occur overnight; the switch requires significant work and expense, he warns. Oberthur develops an operating system incorporated in the new EMV smart chips, but it also manufactures cards which are personalized at a center where data is received and put into chip or stripe.

The entire industry is now focused on the “liability shift” that will occur in October 2015. At that time, the card issuer or merchant that doesn’t support the latest smart chip technology will have to pay for the cost of fraud (gas stations with pay at the pump terminals will have until 2017 to comply). Right now, card issuers are completely liable, whereas credit card users are protected from paying for the cost of fraud under the Fair Credit Billing Act.

The next steps are toward chip and PIN cards that require cardholders to enter a personal identification number, followed by even smarter cards that will have a dynamic CVV (the three-digit code on the back of the card). That number will change each time you use it, preventing a criminal from making a transaction over the Internet, even when they already have your credit card number.

Credit card technology in the United States is moving forward quickly, but we are really just playing catch-up with the rest of the world, as well as with the criminals.

More on Identity Theft:

Image: Medioimages/Photodisc

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team