The Credit Card Of The Future: It 'Talks' To You
MSNBC.COM - There have been repeated attempts to make old-fashioned plastic credit cards "smart" by putting computer chips on them. Smart to whom? Even chip-enabled cards can't tell consumers what the interest rate is on purchases, or when next month's bill is due.
But how smart would credit cards be if they could actually communicate with card holders? We're about to find out. MasterCard recently announced plans to help banks issue cards with embedded computer screens to U.S. consumers this year.
The small LCD readouts will ultimately provide a host of useful information to consumers: current balance, available credit, recent transactions, even special messages from banks or coupon codes from merchants.
"It can be considered as the Swiss army knife of payment cards," said Cyril Lalo, CEO of NagraID Security, which makes the cards.
The firm has been working for years to overcome the practical demands of putting a screen on consumer credit cards, including cost, durability and battery flexibility. The screen must be able to suffer everyday bending that comes with sitting on cards in wallets; the batteries need to last three years or more; and all the electronics must withstand the occasional trip through the rinse cycle in the washing machine.
Those obstacles have been cleared now, Lalo said. While a screen-enabled card is more costly than current magnetic stripe cards, the cost is comparable to other security-enhancing technologies, such as digital tokens issued to some corporate network users.
Some of the cards are already in use by Asian and European banks. Two banks are vying to be first in the U.S., Lalo said. He expects a trial to begin by April, and the cards to be widely available by the end of the year.
Initially, the U.S. version of the card will offer much more modest features, focused on enhancing security during online purchases.
To display real-time information such as account balance, the card has to be connected to the bank's network. European merchant payment systems are wired for that, but U.S. systems are not.
Still, the U.S. cards will be able to generate a code that's precious to fraud-fighters here -- a "dynamic CVV."
Most online and telephone merchants now require consumers to reveal the CVV code (CVV stands for card verification value) printed on the back of the card. For Visa and MasterCard branded cards, that's a three-digit number designed to help the online merchant prove the buyer is actually holding the piece of plastic originally issued by the bank to the account holder.
"Most fraud doesn't come from someone who steals the card now. It comes from people who make a copy of the card," said Lalo.
The CVV code, distinct from the account number, initially provided an added layer of security and helped prove a criminal wasn't simply using a stolen account number to make an order. But over time, its effectiveness has drastically diminished, as computer hackers learned how to steal CVV data stored with transaction data. Advantage criminals.
The screen on the NagraID card restores the usefulness of the CVV because it generates a new code for every purchase. Criminals who steal codes in databases of old purchases -- their current method of choice -- will find the data can't be used for online crimes. In other words, a dynamic, one-time CVV will go a long way towards proving the online shopper is really holding the original bank-issued plastic.
Initially, it won't do much to stop in-person fraud, as few brick-and-mortar merchants bother asking for the CVV. Still, Gartner analyst Avivah Litan said screen-enabled cards could be simple way to take a bite out of Web fraud.
"I think the addition of the dynamic-one-time password to the display is a great idea since it enables strong cardholder authentication without having to invest in much more costly chip technology," Litan said.
Most proposals to upgrade U.S. card security involve smart cards with computer chips that will require merchants to purchase new card readers. With dynamic CVV screens, merchants can use their existing technology.
That's why Sebastien Pochic, a MasterCard product manager, thinks the screen-enabled cards will succeed where so many attempted credit card upgrades have failed.
"The main difference with this product is it doesn't impact the infrastructure," he said. "All the acquiring infrastructure is already there. As a bank, you only need to validate this dynamic value."
Ultimately, the screen cards will add the other whizzy features -- some models even double as tip calculators! -- but not until merchants add the ability to read so-called Near Field Communications chips in stores. Then, each time a NagraID is read, it can download balance information and other useful data.
Banks may not fully understand the implications of putting such information in the hands of their customers, however. At a recent computer security conference, NagraID representatives were proudly telling observers that the new screens would lead to additional revenue because consumers would be more willing to use their cards after checking their balance. (In surveys, consumers say they often don't pull out cards when they were afraid of being rejected.)
But copious other research shows that when consumers are aware of exactly how much they are spending, they usually spend less. Consider this: When was the last time you underestimated last month's credit card bill? Staring at your current balance is a big buy buzz kill.
"It wouldn't change the habits of those that have plenty of credit or money in their accounts … but it would change the spending habits of those who don't, and they would more than likely spend less," Litan said.
That might not be good for banks, but it would be great for you.
RED TAPE WRESTLING TIP
Many banks now let consumers sign up for text messages that provide similar information – such as account balance --to the NagraID card. One easy way to avoid monthly credit card bill shock: Tell your bank to send you a text message with your account balance every day. You'll be surprised the impact it has on your spending.
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