The United States has traditionally driven technological development. Not only does the United States develop new technologies and bring them to market, but U.S. consumers are also typically the first to make use of new products and innovations.
Yet there are some areas in which the United States is behind the curve. I currently live in Germany. I’ve often been frustrated that I can’t use my credit cards at most retailers and restaurants in the EU, and therefore often have to carry around significant amounts of cash. It’s not just that EU businesses are less likely to accept credit cards, often it’s that they won’t accept my credit cards. They only want a different type of credit card – one that uses what’s known as chip-and-pin technology, which is the standard through the EU.
It turns out there is a good reason why those stores prefer the chip-and-pin cards: They are much better at preventing credit card fraud than the U.S.’s old-fashioned magnetic swipe cards. In fact, this study shows that rates of credit card fraud have fallen consistently in countries that have moved toward this technology requiring that users input a pin code, while rates of fraud are increasing in the United States.
I bet most Americans have personal experience with credit card fraud. I know I’ve gotten the call from my credit card company saying that there was a mysterious charge for a couple hundred dollars at a store I never visited in a state I haven’t been in. That’s frustrating, although my credit card company has always flagged such charges and I’ve been held harmless.
But just because I don’t have to pay the bill when someone misuses my credit card doesn’t mean that I don’t pay for it in other ways: The stores and even credit card companies that have to eat those costs must compensate for those losses in other ways, by charging me higher prices or imposing other fees.
That’s why we all have an interest in discouraging theft and this kind of consumer fraud. Just as other intellectual property rights violations and illegal downloading impose a cost on us all (by draining providers and innovators of resources and discouraging more innovation and creative development), there is a big dead weight loss created by credit card fraud that hurts us all. Banks and credit card companies should be proactive in embracing new strategies and technologies that prevent this kind of abuse. Undoubtedly there are significant transition costs to using new payment methods, but enabling more secure transactions will ultimately be in everyone’s interests—except for the thieves.