Thursday, December 4

Consumer Benefits of Credit Card Security

Recently, new types of credit card security features have be debuted, such as this one from Visa. And as some of the comments on Bruce Schneier's blog point out, its questionable how effective this is. I want to figure out what the motivation is behind these ideas, as it appears banks and the major credit card brands are not completely transparent about the benefits to the consumer.

My example is this, one source has that in 2005 $2.8 million was lost due to credit card fraud from Visa and MasterCard in Canada alone. These costs are absorbed by the credit card companies as they protect their cardholders from liability, but as can be expected these costs are directly applied to the card brand customers, people and merchants, in the form of fees and interest rates.

Now lets say that card brands can deploy a technology to eliminate 90% of this fraud and associated insurance and liability costs. Likely a large savings both in Canada and globally. Would we, the public and merchants, expect a reduction in the cost of these services that reflects a competitive portion of the savings?

What I believe is more likely is that the card brand companies will:
  1. Use these new technologies to apply liability for loss and fraud on the cardholders directly - citing the security of the services.
  2. Increase their profits by maintaining or increasing service charges and fees.
  3. Increased inconvenience for consumers and merchants using the services.
Is this better than the current situation for consumers and merchants?
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