Chips, Strips and PINs: Visa® introduces more secure plastic

If you’ve ever worried about hackers making huge charges on your credit card or emptying your checking account, Visa® has good news. It plans to introduce microchip authentication for U.S. debit and credit cards, making it harder for unscrupulous scoundrels to access your account.

These “Chip-and-PIN” cards will feature an embedded microchip and require a four digit PIN, so they are expected to provide enhanced security through a process called “dynamic authentication.” According to the Visa® press release, “Chip technology greatly reduces a criminal’s ability to use stolen payment card data by introducing dynamic values for each transaction. Even if payment card data is compromised, a counterfeit card would be unusable at the point-of-sale without the presence of the card’s unique elements. By eliminating static authentication, we reduce the value of stolen cardholder data, benefiting all stakeholders.”

Chip-and-PIN cards look like regular credit and debit cards, except for an added metallic chip. For consumers, day-to-day usage shouldn’t change. Just swipe and enter a PIN as always.

Despite the increased cost of replacing lost, stolen, and expired cards, the greatly enhanced level of security makes the new technology an attractive bargain.

An obstacle to adoption of Chip-and-PIN cards in the U.S. is merchants who aren’t terribly excited at the prospect of having to purchase chip-compatible terminals. To overcome this, Visa® will use a “carrot-and-stick” approach. The carrot: merchants who reach a certain adoption level can skip the annual security validation process, saving substantial compliance costs. The stick: liability for fraudulent use of the old cards will shift from card issuers to merchants who do not upgrade.

MasterCard has already introduced a similar card in Canada, so we can expect something from them in the U.S. soon. Visa® expects the new technology to be in stores and operational by April 2013.

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