Credit Card Passwords


Overseas, to use a credit card you must insert it into a chip reader and then enter a 6 digit PIN number. The chip makes the card impossible to duplicate. The PIN assures that only an authorized user is using it.

America has been slow to adopt these technologies. The reason is that credit card fraud is enormously profitable for banks. Banks do not assume any liability for fraud. If your card is used fraudulantly at Subway the bank just pushes the charge back on Subway. When they do this, the bank keeps their 4% and adds a $10 to $25 chargeback fee as well. Fraud represents billions of dollars of profits to the US banks.

So, naturally, US banks are not at all anxious to introduce things which reduce fraud.

A law mandates that all merchants must have chip credit card readers installed by October of this year.  Only a small percentage of them will be compliant.

A law mandates that all credit card holders be issued chip cards by October of this year. Only a small percentage of card holders will have chip cards by then.

The fact is that the banks are dragging their feet on these technologies that will reduce bank fraud-profits.

All of the rest of the world requires a PIN number to be used on every credit card transaction. But the US banks vetoed this in the US. So, we will be nearly the only country that doesn’t eliminate fraud because you won’t need a PIN to complete the transaction.

This isn’t surprising, actually. For a decade credit cards have had a “password”. Banks reduced the size of the password to only 3 digits and then they printed it on the back of the card. Could there be anything more stupid than choosing a 3-digit password and then printing it onto the very credit card it is supposed to protect?

My opinion is that banks choosing to profit via fraud is unethical. They are seeking a 4% profit by pushing all fraud liability onto the merchants…and these merchants can’t stop the fraud because they don’t know it is happening until weeks later.

Colin Berkshire