Chip-and-pin credit cards

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LATE next year, Americans, and foreign business travellers in America, can expect to see a big change at every retail establishment they visit: new chip-and-pin credit-card readers that require customers to enter a pin number, rather than sign a receipt, to confirm a transaction. The readers will be paired with a new wave cards that include microchips, rather than the easier-to-copy magnetic strips that dominate in America today. Instead of transferring an entire credit card number during each transaction, the new cards will generate unique authorisation codes. The goal is to reduce fraud.

America is the only developed country that still relies exclusively on magnetic strips and signatures. As a result, it is also the only country in which payment card fraud is growing. Some 42% of Americans have experienced some form of card fraud in the past five years. Of the $11.3 billion lost around the world to such crime in 2012, half was in the US.

The switch will cost retailers hundreds of millions of dollars. But credit card companies have pushed for the change for years. Beginning in October 2015, they will start leaning harder on banks and merchants by shifting the legal liability for fraud to the party with the least-sophisticated technology. That will be a powerful incentive for retailers to upgrade their systems.

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