Thursday, October 13, 2011

Credit Card Fraud

credit card processing fraudIt has long been understood in the credit card processing industry, but not always by those who actually accept credit cards, that security has been rather lax.  Most merchants do not understand how far behind the United States is compared to other countries when it comes to privacy and security.  Keeping up with the crooks is expensive and the industry has resisted necessary steps to protect individuals and their lobbyists in Washington have helped them keep regulations favorable.
Well this might change soon as a result of some recent negative headlines for the credit card processing industry.  Last week there were major arrests in an identity theft ring and government officials are finally calling out the industry.  The Queens, New York D.A. chose to not only blame the criminals in this case but to point out that the credit card industry is partly to blame.  Citing the massive marketing campaigns and limited allocation of funds towards protection, Richard A. Brown wants changes.
Merchants who accept credit cards in Europe know that in order to process the transaction they need not only the card itself, but a personal identification number to be punched into a keypad.  This is similar to what we must do for debit transactions in this country but not for credit.  This simple step would make it much more difficult for fraud to occur because a criminal would have to steal the card and learn the PIN code of the victim.  It sounds easy but the credit card industry here has been slow to make changes saying that it is cost prohibitive.

If You Accept Credit Cards, Watch Out For Credit Card Processing Fraud

The costs are high but in reality it is profit prohibitive to change technology but in the long run everyone would be better off.  Chip technology which actually uses heavy encryption would be a terrific standard for the industry a long with PIN codes for credit transactions but so far it is cheaper to just deal with fraud on a case by case basis than to adopt the changes.  It reminds me of how changes in insurance were not adopted until Hurricane Katrina.
When only one individual is affected by flawed policies nobody cares, but when an entire region of the United States realizes they are victims in one single day, then changes are forced.  It is like that with credit card processing safety and for the first time we have a call to action from a government official whose pockets have not been lined by the banking lobby.
Still reeling from the Durbin Amendment to Dodd Frank which limits fees placed on debit transactions by merchants who accept credit cards, the credit card processing industry will probably try to bury these demands and try to fight this battle later on down the line.