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Waving your phone in front of a cash register in order to pay for an item may seem unimaginable, but phone payments are coming soon to a retail store near you. According to Bloomberg, AT&T, T-Mobile, and Verizon are creating a new partnership that will allow customers of these carriers to pay for purchases using a smartphone. Not only are Visa, American Express, and MasterCard shaking in their boots, but the three mega-companies may also be left in the dust by Discover – the one company that just happens to have a piece of the new phone payment pie.

Even though Visa and MasterCard currently have an 82% share of the credit card market, this percentage may soon begin to decline. Discover is the one credit card company set to team up with T-Mobile, AT&T, and Verizon in order to become a third party processor, while Visa and MasterCard sit and wait on the sidelines. This new technology will also change the way that consumers handle everyday transactions. Instead of carrying around a wallet bulging with plastic, the only thing that you’ll need in the future is your cell phone (which most people already carry).

The new smartphone system is also a lot easier to use than any credit card. With the help of radio waves, waving a smartphone in front of a special device is the only action that you’ll have to take in order to pay for an item. Atlanta, Georgia, is set to be the first smartphone payment trial city. Three additional U.S. cities will follow suit, though there’s no word yet as to which cities have been chosen. The word on the financial street is that the three phone companies are still searching for a CEO to head up the operation, and when that happens the smartphone project should be put into motion.

Presumably, some security concerns will have to be ironed out before the smartphone service becomes widely available, though similar services already exist in Turkey, Japan, and the United Kingdom. Smartphone payment companies would have to ensure that a person’s private data is not leaked while paying for an item. Further, the trio of companies that are set to start the smartphone service would have to make sure that credit card companies don’t begin to follow suit – seemingly, it’s only a matter of time before Visa, American Express, and MasterCard come out with their own smartphone.

In light of the recent credit card crackdown and general mistrust of credit card companies by the American public, now seems like the perfect time for smartphone companies to introduce a new way to pay for purchases. With the biggest consumer offenders (Visa, American Express, and MasterCard) out of the way, smartphone companies may stand a chance at winning over the masses. This (coupled with the fact that waving a smartphone is simply easier than signing a document or remembering a pin number) could mean the end of credit cards as we know them – and for many fed-up consumers, this would be cause for celebration.

Related posts:

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3. The Best and Worst of the Credit Card Industry

Have you heard of this? The Whitehouse, along with “key government agencies, business leaders and privacy advocates” have cooked up a blueprint for a voluntary, centralized identification system that will  somehow clamp down on identity fraud on the web via the “use of trusted digital identities.” It’s called The National Strategy for Trusted Identities in Cyberspace (NSTIC). Sounds nice, I guess, but what the heck does that mean?

The incredibly broad and vague plan is introduced in the not-very-explanatory blog post from cybersecurity coordinator Howard A. Schmidt and laid out in befuddling detail in the draft strategy. And while no one’s arguing that it’d be nice to have a system where “individuals and organizations can complete online transactions with confidence, trusting the identities of each other and the identities of the infrastructure that the transaction runs on,” exactly how The Man intends to achieve that remains a mystery. While they are at it, why not just draft up a strategy for world peace and a zero carbon energy economy?

The strategy brings the issue even further into orbit by inventing the term “Identity Ecosystem” which sounds sexy, I guess, but again, what the heck does that mean? From what I gather, citizens can opt-in to create a sort of smart identity card or digital certificate. Another feature of this Identity Ecosystem is that it’s “user-centric,” which means that you will be able to pick and choose which private information you use to authenticate your identity. To me, this sounds a bit like what they do when you order your credit report history and they quiz you on items from your credit history—names of mortgage lenders, previous addresses, balances on credit card accounts and other stuff like that. The presumption is that only you are privy to this kind of info, but in reality these factoids could be obtained by any determined hacker or dumpster diver. I’m not sure what kind of data the government plans to cook up that’ll be better than that system.

Another problem is that The National Strategy for Trusted Identities in Cyberspace seems to believe that one of the big issues at stake here is the hassle of remembering multiple logins and passwords for various online services. But how exactly would a centralized authentication system help that? Unless you use the same username and password for every single online account, hackers who crack your Facebook password won’t necessarily get access to your Gmail, Bank of America and Mint account, too. The worst they can do is post some porn on your boss’s Facebook wall—they don’t get the run of the place like they would if they compromised your smart identity card or digital certificate. In a way, it’s like having a single skeleton key for your office, car, home, safety deposit box, gun locker and daughter’s chastity belt. Imagine dropping that key in the subway station.

But the biggest NSTIC killer is the fact that it’s completely redundant. Let’s see—you’re looking to create a interoperable, standardized authentication system that works from site-to-site? Sounds a lot like OpenID. But even if we don’t go there and say we shoot for something as simple as a federally recognized number that you can use to verify your identity. But wait, that sounds a heckuva lot like a Social Security number—and we all know those are far from airtight.

The one thing that doesn’t seem like a concern, though, is the notion that the government might use this information for anything sinister and Big Brother-y. For one, the system will be voluntary. For another, what could the government possibly know about you that could A) be used to verify your identity and B) be abused in a way that impinges on your civil liberties? It’s not like you’ll be whispering your deepest, most embarrassing secrets into these super secret smart ID cards—and if you were, why would Obama care if you used to play naked robber with your same-sex childhood friend.

Maybe I’m being too dismissive about this whole initiative. Or maybe I’m just flat out reading it wrong. But I don’t realistically foresee any kind of top-down identity verification system working in the U.S. or anywhere else. There will always be a way to spoof the system and it’s better to have distributed layers of security than a single point of failure.

Agree? Disagree? Chime in below.

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The longstanding battle between merchants and the banking industry has netted at least one victory for merchants on Capitol Hill. This week, the House and Senate came to an agreement over the issue of debit card swipe fees and are brining them under the purview of the federal government. What does that mean? We thought you’d never ask.

Interchange Fees

Interchange fees, or swipe fees, are a cut of the transaction that credit card issuers automatically get every time you pay with plastic. This is usually a percentage—so, if you buy a $100 DVD player,  about $98 goes to Best Buy and the remaining $2 gets divvied up between Bank of America, Visa, etc. By law, merchant’s can’t simply tack that amount on as a surcharge, which means that, in essence, credit card users pay less for their goods than those who pay in cash. Furthermore, certain cards have higher swipe fees than others. All of this, of course, is hidden from the consumer’s view—but it racks up to about $40 billion skimmed from the bottom-line of retailers, merchants and anyone else who accepts credit cards.

The New Rules

While the details are still getting banged out, the new rules will now require swipe fees to be “reasonable and proportional” to the processing cost. Merchants can also now offer discounts for cash, which will help pass the swipe fees on to consumers and extend some savings to those who opt out of plastic. Also, merchants can now set a $10 minimum for card transactions—which is something that many merchants already do, though not with the blessing of the federal government or card issuers. (In fact, prior to this rule, you could probably argue that a merchant couldn’t refuse your credit card for a $9 purchase, since they display the logo at their door.)

The Catches

These rules are still only a small victory for a number of reasons. For one, these restrictions and federal oversight of interchange fees only apply to debit cards, which leaves the other half –credit cards—still unregulated. Also, these rules only apply to banks with assets over $10 billion and exempts government-administered debit cards and reloadable prepaid cards. The former exemption, however, probably isn’t a bad thing since it means that credit unions (who are quickly gaining a reputation as the saviors of the financial industry) won’t be affected.

What’s Really Going to Happen?

As usual, the financial industry took this one kicking and screaming. And, as usual, they warned that taking away one of their beloved sources of revenue would force them to screw us over in some other department. Higher international exchange rate fees, perhaps? More pain at the ATM? Higher interest rates and shorter grace periods for all? We’ll just have to see.

Also, credit card companies, for once, argued against the trickle down theory that retailers have been arguing. Wal-Mart, for one, has been saying that it would pass along the millions of dollars of savings along to their customers. The banking industry, though, says they smell bullshit and claim that the retailers and merchants will just keep the money all to themselves.

Personally, I won’t be surprised if we the consumers once again get the short end of both sticks—no handouts from the 7-Elevens and Targets and more screwovers from the credit card industry. But one thing that will be a welcome change is the allowance of discounts for cash. This is a change that has been a long time coming and has needlessly penalized those of us who choose not to use credit cards.

What are your thoughts? Are the retailers on our side? Have they scored a strategic blow against the Big Banks on our behalf? Or are we just the little guy caught in the middle? Sound off in the comments.

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On Tuesday, the Federal Reserve Board enacted additional consumer protections for credit card users in the ongoing game of legislative whack-a-mole. These new rules, which won’t go into effect until August 22, may bring some relief to perpetually bedraggled plastic swipers. But if we’ve learned anything from recent history, it’s that each push against credit card issuers nets a an equal or greater reaction from the industry. Let’s take a quick look at some of the bones that the Fed is throwing before looking into the crystal ball to see what overcompensating screw-over tactics the credit card industry will cook up next.

Late Fees and Penalties Capped at $25

Under the new rules, late fees and over-the-limit penalties cannot exceed $25. Furthermore, the fee cannot exceed the minimum payment that you missed or the amount that you overcharged.

So, for example, if you have a balance of $200 and your minimum payment is $15.95 and you miss it, your late fee has to be equal or less than $15.95. If your minimum payment is $66, the most they can charge you for a late fee is $25. Unless, you were late before in the last 6 months. If that’s the case, your late fee can bump up to $35. Furthermore, credit cards can get away with higher late fee penalties if they can “show that the costs it incurs as a result of late payments justify a higher fee.” Whatever that means.

The same goes for over-the-limit fees. If you have a credit line of $2,000 and you wind up charging $2,010 in one month, they can only ding you for $10. Also, for any kind of penalty fee, they can only charge you once per transgression. It’s kind of like the double jeopardy of credit card bills.

Inactivity Fees Are Over

Inactivity fees were one of the big comebacks this spring that were dusted off in response to the first waves of the CARD Act. Now, the Fed is banning the practice of charging you for failing to use your card. Of course, they’ve already found a way around this—card companies are imposing new annual fees that are “waived” if you charge a certain amount. Six of one, half dozen of the other.

Rate Increases Must Now Be Explained

Now, if a credit card company increases your APR, they must give you an explanation of why. On the same note, they have to go back and re-evaluate any rate increases every six months. If the reason they originally made up for increasing your interest rate no longer applies, then they have to revert your interest rate back to the original rate.

Maybe it’s just me, but this seems like the most pointless of the new rules. All this will do is make it open season for bullshit excuses. You might expect banks to make the mistake of claiming they are raising your rates because the Fed rate or some other index has gone up, but then they’d have to undo it once things leveled off. Instead, they are likely to send you an extremely carefully worded letter with some complex and indisputable reason for raising your interest rate. It’ll probably be something along the lines of “Because there ain’t nothin’ you can do about it” which will be equally true 6 months from now, even with new legislation.

Anyway, now it’s prediction time. How do you think the credit card industry will respond to these new limitations? Late fees and other penalties were their cash cow, and it looks like the Fed just hobbled it (not that a cash cow’s ability to run is what makes it profitable—it’s not a perfect metaphor, sorry).

Here’s what I think will happen:

• You’ll start losing your rewards for minor transgressions. Diner’s Club does it. American Express does it. Capital One does it, too. The moment you are even a single day late on your payment, they take away all of your rewards points. For the first two I mentioned, you can get them back if you pay them a ransom–$15 or $29, respectively. But with Capital One, when they are gone, they’re gone. Expect this to be the norm.
• Checking accounts will cost you. Free checking accounts are quickly becoming extinct. Banks that used to cash in on overdraft protection (which customers must now opt-in for) are going to make up some of that revenue by charging ever higher maintenance fees on checking accounts. According to Bankrate, the average cost of an interest bearing checking account climbed from $11.97 in 2008 to $12.55 in 2009. This trend is likely to continue.
• Customer service will make you pay. That is, they’ll make you pay to talk to a human. When you call HSBC to pay your bill by phone, they charge you $15 to get a flesh and blood human being to handle your transaction. A nice tactic that taxes those who prefer talking to people, rather than robots. And that’s most of us.

Those are my best guesses. What are yours? Tell us what you see on the writing on the wall in the comments below.

img by eovemar

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1. Credit Card Fees: The Fed’s Latest Proposal
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Credit card fraud is a serious issue, and retailers and credit card issuers have enacted a number of measures to help protect your identity and their bottom-lines. But the backlash of tighter security is that many common citizens are needlessly being treated like potential criminals. The ever-shifting rules for credit card security make it difficult for customers to know when they should give up their personal information and when they have every right to clam up. In spite of that, here are four situations where the law is clear.

Showing Your ID at Checkout

Many grocery stores, department stores and other retail stores ask to see your ID whenever you swipe a credit card. The reason is obvious: to make sure that the name on the card matches the name on your ID. Most of us fork over our driver’s license without question, assuming its a requisite step to having your credit card accepted. But guess what: it’s not. According to the merchant policies for American Express, Visa and Mastercard, merchant’s can’t refuse your transaction if you don’t have identification. The signature on the back of the card and the signature on the receipt are supposed to be verification enough.

So, what if you’re one of the paranoid card carriers that choose to sign the back of their card “Check ID” rather than signing it? Shouldn’t a merchant have to check your ID then? Well, not exactly. In order to be valid, your credit card has to have your signature in that little box. Unless your first name is “Check” and your last name is “ID,” then you’ve just voided your card. The merchant has every right to refuse yourc= credit card purchase altogether. Now, you could write your signature in that box and then scrawl “check ID” somewhere else on the card, but the merchant is still not obligated nor empowered to refuse the transaction unless ID is shown.

Bottom-line: It’s all about the signature.

Giving Your Zip Code

This is a tricky one. When paying at the pump with your credit card, entering your zip code is a valid security measure and, unfortunately, you’ve gotta do it. Punching it in wrong will cause your transaction to be rejected. But when you’re at a checkout register and the cashier ask for your zip code, be sure to ask why.

Some credit card companies will ask for a zip code to verify your identity. In most legitimate cases, the cashier will have you actually punch it into the card reader. This sends your zip code directly to the card issuer and cannot by law be intercepted or stored by the merchant.

However, many stores use uncertainty over the law to trick shoppers into giving up their information for market research. If that’s the case, you don’t have to give it up. So, next time a register jockey asks you to give them your postal code, be sure to ask specifically if this is for card verification purposes.

Disclosing Your Telephone Number

This one is certainly not involved with credit cards and you should never give up your phone number. The reason some stores–such as Best Buy–ask for your phone number for big ticket items has something to do with their customer management software. When the guy at the register tells you that he can’t complete the sale without your phone number, he’s not joking–some systems literally cannot go to the next step with the phone number field empty. It’s not the law, it’s just shoddy store policy and system design. Solution: feed them a fake number. Most experienced cashiers are already hip to this and will punch in a fake number for you if you refuse. Others will put up a stink. Best to avoid a scene and just give them a fake number and get on with it. Your credit card won’t be rejected and the police won’t come knocking on your door.

Show Your Receipt

This one has less to do with credit card purchases and more to do with inconvenience. Many stores now have a loss prevention agent at the door, asking to check your receipt before you walk out the door. By law, you have every right to say “no, thanks” and keep walking. But enough store managers and employers are unaware of this that it’s probably just in your best interest to show your receipt–that is, unless you’re interested in making a scene (see: Best Buy employees blocking a man into the parking lot and a Wal-Mart employee stealing a cart).

Conclusion: Why Not Give it Up?

Folks who hold up checkout lines by refusing to comply with store policy are easily seen as over-principled rabble rousers getting indignant for no reason. But there are some strong cases against giving up your personal information. For one, as we’ve learned from recent news stories, store employees themselves are often identity thieves. Handing over your credit card and letting them punch the numbers into a machine, asking for your zip code, showing them your driver’s license (which has your date of birth, address and sometimes your social security number on it) is like handing them the keys to your identity. Of course, collecting personal information related to credit card purchases and storing it is against the law and credit card issuer policy, but that’s not going to stop an identity thief anyway.

What do you think? Is being a rough customer and refusing to comply with illicit store policy worth the hassle? Or are you just being a pain? Give us your opinion in the comments.

img c/o agius

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Heading overseas this summer? Don’t forget your credit card. Whether you’re in a pinch or simply picking up the tab on the road, credit cards can be your best friend–or worst enemy. Before hopping on that plane, be sure to follow these tips to make sure your credit card works for you in foreign territory.

1. Shop Around

This is the first step because it’ll take the longest. Considering the amounts of perks, travel rewards and insurance protections now being offered by mid- to high-end credit cards, now might be a good time to apply for a new credit card. Start the process a few months out so you can have it and get it activated before you ship out. If you don’t have one already, look for a card that has:

• Low or no foreign transaction fees.
• Travel insurance
• Rental insurance
• Purchase protection
• Airline rewards

Don’t be afraid to get a card that’s completely unbalanced for domestic use. It’s not only okay to have a card solely for travel, it’s also a good idea (we’ll get to why later). We recommend checking out Miles by Discover and Escape by Discover.

2. Bone Up on Fees

Thanks to the credit card fee shakedown spurred by credit card reform and the recession, your credit card’s foreign transaction fee structure may have changed. A 3 percent or higher foreign transaction fee on every credit card purchase is par for the course, but watch out for foreign currency conversion fees as well. Card issuers may also tack on a surcharge as well. ATMs are a good route to go, since you can pull out a big chunk of cash at once and pay the fee only once, so pack that debit card, too. At any rate, it’s advisable to call your credit card company or read through the fine print of the last terms and conditions packet they sent you to see exactly where they stand. It’ll sure beat a big surprise when you get home.

3. Tell Your Credit Card Company Your Plans

If your credit card company knows you live in Jacksonville, Florida and they start seeing lots of spending in Paris, they’re going to go ahead and put a lock on your account. They’re just doing their jobs. So, to avoid the hassle of having your credit card shut out at inopportune times, call them ahead of time. Let them know where you’ll be traveling and when and make sure they note it on your file.

4. Get an In-Country Customer Service Line

The number on the back of your card is a 800 number, which may or may not work overseas. Make sure you have the local customer service contact number  so you won’t be calling long distance back to New York when you’re already in a pinch.

5. Carry a Backup

We’ve already established that you should bring both a credit card and a debit card, but make sure you have a backup credit card from a different bank and issuer just in case. That way, if your Wells Fargo Visa gets rejected for whatever reason, you’ll still have your Bank of America Mastercard to back you up.

6. Store your Credit Card Numbers Online

This may seem like a dubious security blunder, but it just may save your skin. Copy down your credit card numbers, CVV and expiration date and put them somewhere safe online (archived in a password protected email or on a secure password manager). That way, if someone makes off with your wallet, luggage and travel belt, you can still borrow a Euro and pop into an Internet cafe to get your credit card numbers to make some emergency purchases. Otherwise, you’d probably have to chill out until your credit card company shipped you a replacement card, which could take days.

7. Stick to One Card

With that being said, you should only use your primary card unless there’s an emergency. Then, go through your transactions and statements with a fine toothed comb. Do it twice: once right when you get home and again, a few weeks later (some smaller vendors take longer to process credit card transactions). You should be able to follow your itinerary to make sure that nothing got charged erroneously, double-billed or fraudulently charged. This is a lot easier if you only have one statement to look at and you don’t have to sort out your car insurance payments and utilities bills while you’re at it.

Credit cards are a travel essential. But as always, there are liabilities–both in the forms of fees and security breaches. Follow the above tips to lessen the danger of credit cards and reap the most rewards.

Got a travel tip for credit cards? Share with us in the comments.

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Credit card thieves. We know they’re out there. We know we’re supposed to fear them, be ever vigilant against them, and, if given the opportunity, finger them so the authorities can haul them into prison. But who are these people who are stealing your credit cards everyday? It turns out that the vast majority of credit card and identity thieves fall into five main categories:

The Criminal Mastermind

This fellow is rare, but often gets lots of screen and airtime because of his obvious Hollywood appeal (we love a good 21st century cat burglar). The other issue with the criminal mastermind: when he steals your credit card, it’s not your fault. He’s so damn slick that no one saw it coming. There’s even a grudging admiration from the public and law enforcement when they get gracefully grifted by one of these smooth operators. 

Example: Gerald Blanchard, the sticky-fingered super thief who lifted the prize Sisi Star–a diamond encrusted royal jewel–from the Schloss Schönbrunn in Austria and never got caught. He also dabbled in credit card theft, tapping into the digital networks used by credit card companies to process payments and intercepting the credit card informatino. He and his team then manufactured counterfeit credit cards with the stolen credit card numbers and started withdrawing bags of money from ATMs. No one saw it coming.

The Amateur Opportunist

You read about this breed of credit criminal in the papers quite often as well. That’s because they are so dang good at getting caught. Far from calculating masterminds, these hard up individuals will dip their hands into any unattended purse as long as no one is looking. These moonlighting credit card thieves usually get busted on security cameras or because they’re completely inept when it comes to covering their trail. They don’t get beyond two or three credit cards before its curtains for them.

Example: There are too many to count. A 19-year old woman who waltzed into a hospital employee break room and started rummaging through purses. Two teenagers who took some credit cards out of some parked cars and then hit up Chuck E. Cheese’s. A young couple who pulled a poor man’s Bonnie and Clyde and went on a burglary spree and wound up in jail for 15 years after blowing it all on condoms and dog food. These two-bit criminals underwhelm with their lack of guile and it’s almost sad to see them in jail. That is, unless it’s your Ford Focus that they broke into to pay for beer and pizza.

Your Family

When your family breaches your trust, it can often be tense and heartbreaking. But it happens. They live in your house, they know your mother’s maiden name and they can even intercept your mail with ease. When the bank accounts begin to mysteriously dwindle, it may be a good idea to start asking questions under your own roof first.

Examples: The 26-year old man and his girlfriend who was kicked out of his mom’s house because of drug use. Homeless, he was later let in to take a shower from time to time–but while he was there, he snagged his mom’s debit card. And the 28-year old guy who stole nearly $10,000 from his own grandparents, including a credit card. Oh, and don’t forget the 60-year old woman who opened up a credit card account in her ex-husband’s name after divorcing him almost 20 years ago.

Disgruntled Employees

When you hand your credit card over to a convenience store clerk or cashier, you’re putting your trust in their hands. And if he or she is hard up or in a bad mood, there’s a chance he’s going to stick it to The Man (you) by taking a little something something for himself on top of your bubble gum or gas purchase. Some ambitious corrupted clerks turn out an entire side business of credit card thievery by using makeshift devices capable of stealing hundreds of credit cards each day.

Examples: A gas station employee in Sacramento stole over 2,000 credit card numbers, who purposefully “broke” the card reader at the pump so he could help customers “process their cards” manually. Three servers at the Cheesecake Factory were part of a crime ring that skimmed hundreds of credit cards while “ringing that up” for you. Also, an office worker racked up thousands of dollars worth of illicit purchases and gave the tab to his employer–the Northern Virginia Transportation Authority.

Spammers and Hackers

This one is tricky and proves that it’s still a jungle out there on the Web. Hackers aren’t as much a threat as they once were, but now, phishing is in. That is, unsuspecting card holders get emails that are supposedly from their bank asking them to log in or verify their information but in reality, they are just handing over their sensitive personal data right over to the criminals.

Examples: A Canadian woman who filled out a questionnaire in her inbox and then got a call from her bank the next day informing her that her card was being used in Peru. Soupnazi, the hacker who stole credit card numbers by hacking into WiFi networks. And Jim Breyer, the Accel Partners venture capitalist who was roped in by the FBDigits phishing scam.

Conclusion

From the klutzy would-be criminal busted on his first time to serial criminal masterminds who elude the grasp of God himself, credit card thieves come in many shapes and sizes. But the key to protecting yourself from thousands of dollars of liability from fraudulent purchases is the same for each one. It’s dead simple: read your statement. Log on once a week or once a month and go through your statement looking for any suspicious charges. See something fishy? Report it. That’s all there is to it.

Of course, there are more measures you can take, but careful monitoring of your financial activity is the best way to go. If you’re interested in reading more tips on preventing identity theft, check out some of our earlier posts:

• Identity Theft Part I: Tricks of the Trade
• How to Protect Yourself from Credit Card Skimming
• 5 Steps to a DIY Lifelock

Got another tip? Identified another breed of credit card thief? Share with us in the comments.

Img c/o ARTS

Related posts:

1. Stealing Your Cards The Low-Tech Way
2. Identity Theft Part I: Tricks of the Trade
3. Identity Theft Part II: Detection

In Europe, they’ve transitioned away from signature-based credit card authorizations and are instead using credit cards with built-in chips that require a PIN for most transactions. The system is called EMV, named for the three companies that pioneered it–Europay, Mastercard and Visa–and is commonly referred to as chip-and-PIN. Widely accepted as more secure, the idea has yet to catch on in the U.S.–until now. United Nations Federal Credit Union became the first U.S. company to issue chip-and-PIN cards, signaling what may be a sea change in the way Americans pay with plastic. As with all new technology, chip-and-PIN, or “smart credit cards” raise a few questions:

How does chip-and-PIN work?

From a consumer standpoint, it’s not much different than using a debit card at checkout. You swipe your card, enter your PIN and the transaction is complete. No signatures required.

How is a chip-and-PIN card different?

Your current credit card has all of the relevant information contained in the magnetic strip on the back. Swiping it through a machine simply pulls it all up, as if they were plucking your file from a cabinet. With the chip-and-PIN card, your sensitive data is encoded and encrypted.

What’s wrong with signatures?

The main line of defense for signature-based cards is the checkout clerk, who is supposed to compare your signature to the one on the back of the card and reject your transaction if they don’t match. The pranksters over at Zug.com proved the pointlessness of credit card signatures by purposefully signing credit card receipts with wacky stuff like “Porky Pig,” and “I stole this card” and even just a plain X. None of those transactions were denied.

Why aren’t chip-and-PIN cards used in the U.S.?

Chip-and-PIN hasn’t caught on on our shores for one big reason: it’s a pain to upgrade equipment. Bring a chip-and-PIN card to your local TJ Maxx and they won’t likely be able to read it. Bring your U.S. magnetic strip card to a U.K. gastropub and their chip-and-PIN cards may not be able to process it. There’s going to have to be a tipping point either way before chip-and-PIN terminals become the norm. Currently, the UNFCU smart cards are hybrids–they work with magnetic-strip and chip-and-PIN readers.

Is this safer for me as a consumer?

Maybe. You may actually be worse off in the case of identity theft. Because the chip-and-PIN system is considered foolproof, bank policy presumes you liable for any point-of-sale transaction where a valid PIN was detected. In Europe, you have to prove without a doubt that you were not present during the transaction in order to fight a fraudulent chip-and-PIN charge. This is different from the current setup, where cardholders often get the benefit of the doubt and wind up paying $50 to $0 for fraudulent charges.

But is chip-and-PIN really foolproof?

Not at all. Researchers at Cambridge University found a way to hack chip-and-PIN cards that lets you bypass the validation without a correct PIN. Essentially, they mocked up a middleman device that faked the “validated” sign and sent it to the terminal regardless if the PIN was entered correctly. This kind of fraud hasn’t been detected in the wild, but the potential remains.

What else is a drag about chip-and-PIN?

For one, you’ll have to remember your PIN. Guess wrong three times in any given day and you’ll be locked out of your account until you get ahold of your bank and unlock it. Also, chip-and-PIN cards don’t offer the same level of protection online, where they work the same as any old credit card.

So who benefits from a chip-and-PIN system?

The real winners here are the card issuers. An estimated $4 billion in revenue was lost for U.S. card issuers because our dumb American cards won’t work in Europe half the time. Not only that, card issuers spend less overall on security audits and fraud cases with the chip-and-PIN system. In short, it makes their job easier. But it doesn’t really make a difference to us, unless you think those savings will trickle down.

What are your thoughts? Will chip-and-PIN be a big deal in the U.S.? Do you welcome the change or would you consider it an inconvenience? Let us know your thoughts in the comments.

img by anthrocopy

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Oh boy. What follows is a rant from a non-believer. So, take it with a grain of salt.

There’s this hot new trend on the horizon that folks like The Wall Street Journal are calling “social payments.” (Because anything with the word “social” in front of it has got to be edgy and relevant, right? Bob in communications really thinks this could “go viral.”) The idea? For everything you buy–whether it’s an inflatable kiddie pool, a package of tube socks or a case of Enzyte–you’ll now have the option of sharing it with friends, family, co-workers and strangers. It’s conspicuous consumption 2.0, and it’s the perfect solution for anyone who wants to take decades of effort spent desperately trying to keep stuff like credit card statements and spending habits a matter of privacy and kiss it all goodbye.

So, why is this going to work? According to the experts (i.e. those who are actually trying to pull this off, like Swipely, and their army of financial backers, such as Index Ventures, First Round Capital, Greylock Partners, Lowercase Capital and other glitterati from the tech ventures space), they’re going to be “adding value” to every credit card swipe. Every single purchase on your Visa, MasterCard, Amex or whatever it is you’ve got in your wallet will now be a conversation piece. Swipely is still in private beta, so I haven’t had a chance to see it in action, but one can only imagine that it’s going to be something like a cross between the Facebook News Feed and your wife going through your credit card statements and asking, “When the hell did we spend $500 in Las Vegas?!”

For example, let’s say you pop on down to Starbucks and try one of those new Your-Way-Frappes (or, if you’d rather call it by its clunkier official name: “However-You-Want-It” Frappucino Drinks). By the time you sit down at the table with your character-defining customized coffee drink (”See, I got two shots of espresso but with extra sugar. Because I’m bold, with an undertone of sweetness,”) you can pull up your smartphone and join the convo about your recent five dollar beverage purchase. Your old college roommate will have chimed in, “Hey man, tell me how that is! I’ve been meaning to try it, but I’ve been waiting for some other schlemiel to waste his money on it first.” And the Starbucks CEO can send you a quick automated thanks for your patronage.

Or, maybe you swipe your card at the theater and settle in for a nice viewing of “Furry Vengeance” and by the time the previews are over, you realize that four of your buddies who “used to think you were cool” have un-friended you.

Or, maybe you walk into a dealership and drop a wad on a Bugatti Veyron and suddenly, old flames are sending your winks and pokes. (”Get a load of this guy. He’s loaded!”)

Photo by Rick

In this way, it’s a bit like Yelp.  It’s a forum for on-the-go mini-reviews and social discourse on commercial minutiae. Your working the worldwide room, so to speak, and telling everyone where you mingle and what you think of it. In other words, it’s a great way for companies to get some free market research. To that end, it’s obvious where the “value added” is for marketers. But what’s in it for you? It’s hard to say.

There are some burning questions that the notion of “social payments” brings up, at least for me:

Shouldn’t they be paying us for this?

You know when you walk into the mall or something and they’ve got Simon representatives handing out surveys about your shopping habits? And when you’re done, they give you like a $5 gift certificate for Orange Julius? That’s fine and fair. First of all, those are anonymous surveys. The purpose is transparent. And the payoff is decent ($5 for five minutes of your time). But now, they expect us to give up the goods for free? We’ve already seen a huge backlash against Facebook’s attempts to harvest the sweet, sweet golden  personal data from their millions of users. So, why should anyone be expected to hop on board with a brand new thang that does the same but gives hardly anything in return?

Is this safe?

I’m not paranoid about credit card security. But then again, I’ve never had my identity stolen. In a way, stuff like social payments may actually be beneficial for credit card security. If you’ve got your friends and family watching your credit card activity, it’ll be easier for them to spot something fishy. (”Hey, uh, Dan, it says that you just bought a plane ticket to Afghanistan from Montréal–Pierre Elliott Trudeau International Airport. Doesn’t seem right to me…”). But that’s not the real danger. As we’ve learned from Blippy, which accidentally exposed the credit and debit card numbers of over 200 users, technology can only be trusted as far as you can throw it. Sensitive personal and financial data is a bit like radioactive waste. You can seal it up and sequester it as “securely” as you want, but the fact of the matter is that the more that’s out there, the greater the chances of a spill. The fallout from just one improbable disaster will cause irreparable damage.

What does this say about society?

Remember when John Cusack and Zach Braff used to pick up chicks by making them mix tapes? That’s how we used to connect. That’s how we could convey our emotions and feelings for each other and expose our hopes and fears when words failed us. We found identity through the songs and artists that spoke to us, seemingly whispering private revelations directly into our ears through those big, dorky headphones.

Fast forward a few decades and we still haven’t been able to frame the contents of our souls with mere words. We’re making baby steps, though. Now, we can represent the totality of our existence by giving 140 character responses to queries like “What are you doing?”

But for some, that’s still too much of a challenge. Social payments to the rescue! Talk is cheap. Let’s see what’s in your shopping cart.

If we live in a world where publishing your bank statement can be seen as a valuable social experience, then it means that we have given in to the marketing machines and we really, really, really are defining ourselves by what we buy. As someone who’s watched Fight Club twice, that seems kind of scary to me.

Actual Poster in Pittsbugh International Airport

That’s my opinion. I think the whole thing is silly. But then again, I’m no businessman. I’m no Wall Street investor and I’m definitely not a tech wiz. Guys like Anton Commissaris, Chris Sacca and Keith Rabois (who hail from such successes as Mint.com, Google and Paypal, respectively) seem to be convinced, however. They are obviously way smarter than I am and they’ve put their money behind businesses like Swipely. So, there must be something I’m missing here. Anyone have any idea of what it could be? Let me know in the comments.

Post img c/o Polina Sergeeva

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