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In U.S., Massive Card Fraud Is Still Cheaper Than Safety

NEW YORK ( LowCards.com) -- For years, the United States has lagged behind the rest of the world on moving to more secure EMV credit cards. Consumers have not asked for them, so credit card issuers and retailers have not made the costly switch. But recent data thefts at Target and Neiman Marcus that have affected millions may force that long-overdue change on the credit card industry.

While the United States accounts for only 27% of the credit card transactions in the world, it is responsible for 47% of card fraud, according to the Nilson Report.

In the United States, credit cards have a magnetic stripe that contains payment information with a 16-digit number that never changes and is given out hundreds, if not thousands, of times each year. It is relatively easy for a sophisticated thief to steal this information and create a fake card.

An EMV card, named for developers Europay, MasterCard and Visa, is a regular-size card with an embedded chip and a magnetic strip. The transaction information is encoded differently every time, which makes it harder for criminals to steal data and use them for another purchase. Chip and PIN is a much more secure technology and requires the cardholder to enter a four digit Personal Identification Number that must correspond with information on the chip. No personal information about your account is stored on the chip.

The data breaches have been big news lately, affecting millions of consumers and costing billions of dollars, but many analysts believe absorbing the costs of fraud is still cheaper than converting from magnetic strip to EMV. The cost of adopting the technology is estimated to be anywhere from $15 billion to $30 billion, but fraud costs only about 5 cents for every $100 of credit card use, according to The New York Times.

Visa and MasterCard are pushing for the change, though, and may begin shifting liability to merchants who have not equipped their stores to accept chip cards beginning in 2015. Still, even if if merchants take care at their end, there is no guarantee credit card companies will all start issuing EMV cards.

EMV cards are the standard throughout Asia and Europe, and countries that have adopted the technology have seen a sharp decline in credit card fraud. According to a Retail Payments Risk Forum study, fraud losses in the United Kingdom since widespread adoption to the EMV cards in 2004 has decreased 34%.

These EMV cards won't protect against all bogus transactions, but it appears they will cut down significantly on credit card fraud -- a move that may be long overdue here in the United States.

Bill Hardekopf is chief executive of LowCards.com, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

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