New Technology Only Lets You Use Your Credit Card If Your Phone Is Nearby

iPhone

Just about everyone knows credit card fraud is becoming a major problem, with that massive Target breach a few months back the latest reminder.

The retailer noted that some 40 million customers had their credit or debit information stolen by hackers, another sign that not enough has been done to protect electronic payment systems in this country.

Credit card fraud is pretty much a sure thing at this point; I cant remember the last time 12 months have gone by without a call from one of my credit card issuers informing me of suspected fraud.

Unfortunately, every time this happens, and I have to deal with the fraud department, take the time to cancel my credit card, and wait for another to arrive in the mail.

Despite numerous occurrences, nothing seems to have changed. I’ve even told the fraud department to tell their higher-ups to create a more secure system. It has become an absolute joke at this point.

Chip and Pin Credit Cards on the Way In, Finally

Thankfully, credit card issuers in the United States will soon migrate to a “chip and pin” system, which will pretty much make the magnetic stripe a thing of the past (it will remain, but won’t be used as often).

It’s already in place overseas, perhaps because of the transient nature of places like Europe and Asia.

And rather ironically, we’re only getting on board with chip and pin because our outdated credit card security has deemed us an easier threat to worldwide hackers.

In a nutshell, chip and pin credit cards look just like our current credit cards, except for the fact that they have a square metallic microprocessor on the front.

As a result, the chip and pin credit card is inserted face up into a slot, as opposed to being swiped on one end through a card reader.

As far as the pin portion, that just means punching in a pin code, as you would with a debit card transaction.

It’s unclear if merchants will require the pin, or simply allow customers to sign as they currently do, in which case it will be “chip and signature.”

I personally prefer the pin, seeing that it adds another layer of defense, which could mean I won’t have to deal with my fraud department anytime soon.

In any case, the chip and pin credit card migration is expected to take place by October 2015.

What About a System That Proves You’re In Possession of Your Credit Card?

In the mean time, MasterCard and Syniverse have announced a new opt-in service that allows credit card transactions to take place only when users have their mobile device handy.

It works by taking note of the user’s specific geolocation, so the phone must be switched on with data enabled.

Then, if the user attempts to make a credit card transaction, the system determines if the phone and credit card are in the same area.

If they’re not, the transaction will be declined. A real-world example would be a NYC-based business traveler working abroad in London.

The system will know if someone is trying to use his or her credit card fraudulently back home if the phone is currently in London.

Not only does it prevent fraud, but it also ensures cardholders aren’t denied for legitimate purposes as well.  Apparently anywhere between 50-80% of legit transactions are declined abroad…

[Best credit cards to use while abroad.]

Of course, this requires users to actually turn on their mobile devices while abroad, which can be quite expensive.

In the future, the technology could also be used to send targeted offers to users based on their location and proximity to certain retail shops.

It’s actually a pretty good idea, though there is the chance of losing your phone and your credit card at once!

Tip: What to do if you lose your credit card.

Author: Colin Robertson

Colin created this blog after spending several years in a job that required him to scour credit reports on a daily basis. His goal is to help individuals better understand their credit and get the most out of credit cards.

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