I just read an interesting article by Brian Krebs about the difficulty in replacing credit cards [1].
The main reason that credit cards need to be replaced is that they have a single set of numbers that is used for all transactions. If credit cards were designed properly for modern use (IE since 2000 or so) they would act as a smart-card as the recommended way of payment in store. Currently I have a Mastercard and an Amex card, the Mastercard (issued about a year ago) has no smart-card feature and as Amex is rejected by most stores I’ve never had a chance to use the smart-card part of a credit card. If all American credit cards had a smart card feature which was recommended by store staff then the problems that Brian documents would never have happened, the attacks on Target and other companies would have got very few card numbers and the companies that make cards wouldn’t have a backlog of orders.
If a bank was to buy USB smart-card readers for all their customers then they would be very cheap (the hardware is simple and therefore the unit price would be low if purchasing a few million). As banks are greedy they could make customers pay for the readers and even make a profit on them. Then for online banking at home the user could use a code that’s generated for the transaction in question and thus avoid most forms of online banking fraud – the only possible form of fraud would be to make a $10 payment to a legitimate company become a $1000 payment to a fraudster but that’s a lot more work and a lot less money than other forms of credit card fraud.
A significant portion of all credit card transactions performed over the phone are made from the customer’s home. Of the ones that aren’t made from home a significant portion would be done from a hotel, office, or other place where a smart-card reader might be conveniently used to generate a one-time code for the transaction.
The main remaining problem seems to be the use of raised numbers. Many years ago it used to be common for credit card purchases to involve using some form of “carbon paper” and the raised numbers made an impression on the credit card transfer form. I don’t recall ever using a credit card in that way, I’ve only had credit cards for about 18 years and my memories of the raised numbers on credit cards being used to make an impression on paper only involve watching my parents pay when I was young. It seems likely that someone who likes paying by credit card and does so at small companies might have some recent experience of “carbon paper” payment, but anyone who prefers EFTPOS and cash probably wouldn’t.
If the credit card number (used for phone and Internet transactions in situations where a smart card reader isn’t available) wasn’t raised then it could be changed by posting a sticker with a new number that the customer could apply to their card. The customer wouldn’t even need to wait for the post before their card could be used again as the smart card part would never be invalid. The magnetic stripe on the card could be changed at any bank and there’s no reason why an ATM couldn’t identify a card by it’s smart-card and then write a new magnetic stripe automatically.
These problems aren’t difficult to solve. The amounts of effort and money involved in solving them are tiny compared to the costs of cleaning up the mess from a major breach such as the recent Target one, the main thing that needs to be done to implement my ideas is widespread support of smart-card readers and that seems to have been done already. It seems to me that the main problem is the incompetence of financial institutions. I think the fact that there’s no serious competitor to Paypal is one of the many obvious proofs of the incompetence of financial companies.
The effective operation of banks is essential to the economy and the savings of individuals are guaranteed by the government (so when a bank fails a lot of tax money will be used). It seems to me that we need to have national banks run by governments with the aim of financial security. Even if banks were good at their business (and they obviously aren’t) I don’t think that they can be trusted with it, an organisation that’s “too big to fail” is too big to lack accountability to the citizens.
[1] http://tinyurl.com/msfby5q
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