Time for U.S. to Get Smart with Smart Cards

Safer and Smarter Credit Cards are Used Worldwide, So Why Not Here?

The United States generally takes pride in being a global industry leader. Whether its military, space program, automative, medical or technical, being at the top of the list means good things for your citizens and economy. There is one category however that has this country trailing much of the rest of industrialized world, by a lot, and that is credit card technology. 

Since as early as 1984, credit cards using smart card technology had been used in France and since has become the standard for most credit card processing all over Europe. Traditional credit cards contain a magnetic strip that houses all of the card information with little security, a “smart card” however uses a computer chip and requires a four digit pin number, similar to an ATM Card. The “chip and pin”, as it is sometimes referred to, is specifically designed to be more secure and protect against frauds. 

With traditional credit cards, you face the risk of physically losing your card, having your number stolen or even having your card cloned, the latter two of which you may not even know has happened. Just recently, 178 people in Europe and the U.S. were arresting in an international cloning scam worth over $24 million. Sometimes with the magnetic strip cards, your last (and maybe only) line of defense is hoping the sales clerk asks for identification. 

The first level of security for a “smart” card is a four digit pin is required to complete any and every transaction. Then using cryptographic algorithms, the card generates key pairs that act as digital signatures that are exchanged between the card and the card reader to verify authenticity. Finally the transaction is then completely in an encrypted form to prevent hacking after the sale has been completed. 

Smart card transactions always offer a couple of other advantages for both consumers and merchants. As the consumer, you receive authorization almost immediately without the card ever leaving your view, as the keypad must be brought out to you. As a merchant, the transaction is completed at a much quicker rate, which means the credit card processing companies also receive the transaction sooner. The sooner the credit card processing is complete, the sooner those funds are in your company account. 

While this technology is prevalent in Europe, the U.S. seems to be resisting the change to the new cards. A large reason behind this is financial institutions may fear the expected costs of integrating it into the current payment system. Merchants would be required to upgrade their current terminals and banks would be responsible for issuing new cards to all the consumers. 

The U.S. is slowly coming on board and it’s really about time. Although most Americans traveling overseas don’t experience any problems when staying in the mainstream tourist areas, those who explore off the beaten path or use ticket kiosks at some railway stations may have some issues. Foreigners traveling here however, with other payment options, may find their spending ability very limited, and in this economy, that is not good.

Patrick Kelly is an expert writer on phone systems based in San Diego, California.  He writes extensively for an online resource that provides expert advice on purchasing and outsourcing decisions for small business owners and entrepreneurs such as VoIP service at Resource Nation.