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President Obama Signs Executive Order To Improve Credit Card Security

Saturday, January 3rd, 2015

In order to fight the growing menace of identity theft and credit card fraud, U.S. President Obama recently signed an executive order to improve the security of government issued credit cards and payment terminals. As per the order, all federal cards and terminals would be upgraded to chip-and-pin based technology which is considered a lot more secure than the swipe based payment technology that is currently in use. Considering that credit card fraud is at an all time high (almost worth $9 billion every year) and identity theft has been a growing concern among Americans for almost a decade, the President’s order is a welcome step in the right direction.

While announcing his decision at Consumer Financial Protection Bureau, the President highlighted that last year over 100 million Americans saw their financial information getting compromised due to thefts and security breaches. The President was of course referring to the string of credit card thefts and data breaches that occurred at Target, Home Depot and JP Morgan Chase. The President also mentioned that identity theft is one of the fastest growing crimes in America and these crimes not only cause huge losses to consumers and financial companies but also threaten the economic security of hard working Americans.

During the event, President Obama appreciated the fact that Home Depot and Target have decided to move towards chip-and-pin based transactions starting from 2015. In addition to these two companies, all Wal-Mart and Walgreens stores are expected to transition to chip-and-pin based transactions from early next year. The President encouraged other financial and retail companies to upgrade their technology so that customers can shop and transact with total confidence. The President also announced that FTC is going to revamp IdentityTheft.gov to aid the victims and help them to remediate with the credit bureaus.

The transition to chip-and-pin technology is expected to cut down the instances of credit card fraud drastically. That’s because unlike magnetic stripe based cards which are easy to read and clone, the chip-and-pin based cards store information in an embedded chip and need a PIN to transact successfully. A lot of countries have already moved to chip-and-pin based technology but US lags far behind presumably due to high costs involved with upgrading payment terminals and cards.

It must be kept in mind that while President Obama’s executive order is likely to make physical transactions more secure, it does not address the issue of security breaches that occur online. That’s because even chip-and-pin based cards do not provide any additional security for online transactions. Some countries have migrated to a payment system where even online transactions require an additional code (known as 3D Secure Code) but it is unlikely to happen in U.S. soon. The President’s security initiative also does not cover the security of mobile transactions which are increasingly being favored by consumers. So while we must appreciate that the U.S. government is finally taking financial crimes seriously, a lot more needs to be done to eliminate credit card fraud and identity theft totally.

January 3, 2015

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