Identity Theft Calls For The Re-Invention Of The Credit Card
April 20, 2007
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In 2005 and 2006, a total of more than 18 Million people were exposed to Identity Theft in the U.S. alone. Losses associated with Identity Theft for those two years exceeded $100 Billion on a combined basis. In 2006, Identity Theft complaints comprised 36% of all Fraud complaints, the highest ranked fraud complaint category (Catalog Sales fraud complaints were ranked second, at 7% of all Fraud complaints). The highest ranked payment method associated with Fraud complaints was the Credit Card, comprising 30% of all payment types. The persisting threat of Consumer Fraud and Identity Theft, calls for the re-invention of the Credit Card, the Fraudsters' weapon of choice in committing Fraud and Identity Theft crimes against Millions of innocent individuals.
The credit Card was invented in 1950 through the introduction of Diners Club credit card. American Express and Visa followed with their own credit cards in 1958. Today, we are in the year 2007, 57 years since the original introduction of the Credit Card. Although there have been advancements in various aspects of the Credit Card during the past half a century (such as the migration from a paper based card to a plastic based card), the underlying processing principle remains the same: A- you present your card, B- you are possibly asked for a validation ID Card, C- you sign the bill, D- the merchant retains a record, E- you retain a receipt, F- the merchant is reimbursed by the Credit Card company, G- you are billed by the Credit Card company.
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 | The possibility for Fraud and Identity Theft risks are
apparent in every single step of such process. Such risks are derived
from three possible sources for the fraud: A- the carrier of the Credit
Card (as it could be a stolen Credit Card and a stolen ID card) B- The
processor of the Credit Card (as the service employee, such as waiter,
cashier, or business owner himself, could copy some valuable
information and sell the data, or run fake charges) C- A third party
that gets its hand on parts or all of the transaction (such as dumpster
divers who retrieve receipts from the garbage, or thieves who steal
laptops containing millions of data).
If the Credit Card is to
be re-invented, it must neutralize those risk sources. In essence,
transaction paper and digital trails, containing sensitive information
must be minimized. Users and Acceptors of Credit Cards must be
verified. There have been Payment Form innovations that have addressed
some of these risks. The Debit Card, for instance, makes it impossible
for a thief to use the card, unless he also possesses a PIN. The
problem is that consumers are rightfully concerned that a criminal in
possession of a Debit Card and a PIN can potentially deplete an entire
account. Chip and PIN Credit Cards have also been introduced, and
certainly are a promising tool in preventing the Credit Card use by
anyone other than the true owner (who has sole possession of the PIN).
Most
recent highly publicized Identity Theft cases have centered around a
major merchant compromising the sensitive data of customers. Such
merchants include the prominent names of TJ Max, Marshalls, CVS, etc...
The re-invention of the Credit Card may have to require that sensitive
payment information is not stored at all at the merchant. In essence,
Paypal has introduced such concept in online payment processing. When a
merchant accepts payment from a customer with a Paypal account, the
consumer enters his payment information directly to Paypal. In the case
of a Paypal account, the merchant does not receive any of the sensitive
payment information. The merchant simply receives a transaction number,
and a confirmation that he has been credited the charge from a specific
customer.
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Paypal has proven to be a successful payment model,
quickly attracting in excess of 120 Million accounts. However, Paypal
customers have also had to stay alert for any Phishing scams. Although
Phishing is a serious threat to Paypal, in reality, Phishing is a
threat to any financial institution or payment processor. Although
Phishing is indeed a threat, at the least, you can protect your
sensitive information by not releasing it to any solicitors. On the
other hand, when dumpster divers steal your sensitive information which
had been discarded by a merchant, there is nothing you could have done
to prevent that from happening (other than having paid in cash...).
It
is possible that the re-invention of the Credit Card may lead to a
world comprising only of: "No Credit Card" payment processors (such as
Paypal), Chip and PIN only Credit Cards, another yet unknown ingenious
payment method, and the elimination of paper and digital trails. After
all, why do merchants need to retain your Credit Card number, once they
have processed the transaction? Isn't a transaction ID, with a payment
approval confirmation ID (from the payment processor) sufficient? |
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