Can Smart Cards Reduce Payments Fraud and Identity Theft?

In the United States, when a consumer presents a payment to a merchant, the merchant typically makes a request for authorization before accepting the payment. Personal information, such as an account number, address, or telephone number, is often enough to initiate a payment. A serious weakness of this system is that criminals who obtain the correct personal information can impersonate an honest consumer and commit payments fraud. A key to improving security—and reducing payments fraud— might be payment smart cards. Payment smart cards have an embedded computer chip that encrypts messages to aid authorization. If properly configured, payment smart cards could provide direct benefits to consumers, merchants, banks, and others. These groups would be less vulnerable to the effects of fraud and the cost of fraud prevention would fall. Smart cards could also provide indirect benefits to society by allowing a more efficient payments system. Smart cards have already been adopted in other countries, allowing a more secure payments process and a more efficient payments system.