According to New Haven, Conn.-based FBI Special Agent Keith Slotter, over 124 million of the 193 million adults in the United States own at least one credit card. Experts expect the gap to narrow over the next six years at a rate of about 2.8 million new cardholders per year. But in the 15-year period from 1980 to 1995, bank card fraud losses to Visa and MasterCard alone shot up from $110 million to $1.63 billion — a ten-fold increase.
One common fraud tactic faced by retailers is use of a card with a fake hologram. Smugglers bring holograms into the United States and Canada regularly, and Slotter says “the key to quickly identifying a counterfeit card lies in an examination of the hologram. On legitimate cards, the hologram is actually embedded in the plastic upon manufacture. Counterfeit credit cards commonly contain a hologram decal purchased from an illegal distributor. These holograms are affixed to the top of the card, rather than embedded in the card, and can be seen or felt to rise slightly above the card face.” Merchants can spot fake cards by an inconspicuous examination of the hologram.
Due to the shortcomings of holograms as a fraud deterrent, Slotter says, many credit card manufacturers currently are modifying magnetic strip coding to include additional personal identifiers, such as customer photographs, fingerprints and personal histories. “Photographs on the face of credit cards have been used by financial institutions for the past 25 years,” he says, “but their value as a true fraud deterrent has been questioned because such photos can be altered easily. There are systems which can digitally encode a customer’s photo within the magnetic strip, enabling verification through specialized processing terminals at the point of sale. But such technology is still quite expensive.”
So-called Smart Cards, the “next generation” of cards, Slotter says, “feature computer chip technology in lieu of holograms,” and have “a microprocessor memory chip, as well as data encoded on the magnetic strip,” with PINs for extra security. Alas, they too are expensive, as the necessary infrastructure to issue and accept such cards will cost an estimated $7.4 billion over a five-year period.
“Within the next several years, the term ‘credit card,’ as we know it, will become antiquated,” Slotter predicts, “likely to be superseded by such terms as ‘banking card,’ ‘electronic payment card,’ or ‘check card.'” He says the industry foresees a time when bank customers will be able to use a single card to accommodate a variety of transactions, including ATM withdrawals, credit purchases, direct bill payments and purchases against predetermined stored value levels.
Several companies are currently working with Visa and MasterCard on these services, and prototypes of stored value and debit/credit combination cards are being test marketed and issued throughout the country with the goal of “creating a single card through which customers can administer all their financial needs, from paying bills via electronic transfer of funds to buying and trading securities over the New York Stock Exchange.”
Yet staying ahead of criminals isn’t easy. “By the year 2000, gross bank card volume is expected to total $9.9 trillion,” Slotter says, “and based on current fraud ratios, cumulative credit card fraud losses between 1993 and 2000 will exceed $14 billion, almost three times the accumulated loss of the previous seven years.” Strong motivation for merchants to be constantly on the alert for fraudulent charges.
