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Sam’s Club joins race for a fraud-fighting credit card

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Sam’s Club joins race for a fraud-fighting credit card

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Sam’s Club, the warehouse-club chain, owned by Wal-Mart Stores Inc. WMT +0.55% , said Tuesday that it would unveil chip credit cards this month. These cards store data on a microchip rather than on a magnetic stripe and are considered more fraud-resistant, given that the chips are difficult to duplicate. In fact, much of the world outside the U.S. has been using them for years.

Chris McWilton, MasterCard’s North American president, said in a press release that the Sam’s Club MasterCard MA -0.29% will “help drive chip-enabled technology forward here in the U.S. as it gains more traction.” [Is the Sam’s Club card a MasterCard (or in partnership with MasterCard)? Let’s say so explicitly, if so.]

And it’s about time.

Toronto has a tech-startup scene? Who knew? The WSJ's Eva Tam traveled from Hong Kong to see how her hometown is trying to make its mark—with a stringless violin, gamer gloves and “smart” shirts.

The U.S. — home to half the world’s card fraud, though it only accounts for about a quarter of its transactions — will be the last developed country to take on the technology called EMV, which stands for Europay, MasterCard and Visa V +0.05% , the companies that began developing it in 1994. And that’s assuming the country meets an October 2015 goal.

“Since EMV chip cards are nearly impossible to counterfeit, they eliminate one of the most important incentives for criminals to steal payment data today — their ability to use the data to create counterfeit cards,” Visa Chief Enterprise Risk Officer Ellen Richey told a Senate committee in March. “As such, EMV chip makes payment data a less attractive target for criminals.”

In the United Kingdom, credit card fraud diminished by 47% from 2004 to 2010, after the system was adopted in 2002, according to a Federal Reserve Bank of Atlanta report.

Chip-and-pin cards are more expensive to produce than magnetic stripes, said Nick Holland, senior payments analyst at Javelin Strategy & Research. They hover close to $1 per card, compared with 20 to 30 cents for traditional cards, not counting additional costs for processes like authorization.

Analysts say this means high-tech innovations other companies are proposing, like cards with built-in keypads or disappearing digits, may have to wait.

Given the slow pace of adoption in the U.S., the more ambitious card-tech ideas may not go mainstream anytime soon. The “Hidden” card, by Pennsylvania-based Dynamics, Inc., for instance, hides six digits of the card number on a blank screen until users enter a password. For every transaction, it generates a new three-digit security code, as well as the key encrypted into the magnetic stripe. Altering the permutations for every transaction means a thief can’t use the last permutation to make a purchase, Dynamics CEO Jeff Mullen said.

“This is a global fix to credit-card fraud,” Mullen said. “Consumers will sign up for these types of products and will actually switch banks to get the security and the value.”

Another innovative idea is Coin, a black, digital screen that stores all your existing cards’ information into one device. These cards are also attempting to “wring even more efficiencies out of the status quo,” given that the U.S. should’ve started using EMV decades ago, says David Robertson, publisher of the payments industry newsletter The Nilson Report.

But will banks and merchants embrace these more complex cards? “Ten years from now, we’re all going to still have plastic cards, let’s be clear about that,” Robertson said. Walmart’s announcement comes a month after Target said all store-branded cards would include chip technology beginning early 2015, representing a race between the retailers, he said.

Here’s why: Such higher-tech cards cost much more than chip-and-pin and magnetic stripe cards, a factor that deters banks and payment giants from producing them for the masses, experts say. “If the entire payments industry is moving to chip cards next year, which it is, these will be obsolete in a year,” Holland said. “They’re technologically very interesting, but that doesn’t really make them mass-market adoptable.”

As companies invest more in each EMV card, they’re also extending the card’s life span from the average two or three years until expiration to about five years to save the cost of issuing new cards, Holland said. Plus, he said, cards that ask consumers to alter their behavior — by adding an additional passcode, for example — have difficulty gaining traction.

He said geolocation features that sync credit cards with smartphones to make sure they’re in the same place during a transaction have more hope of taking off, because while they add an extra layer of protection they don’t ask consumers to change their behavior. People already carry their smartphones.

Sam?s Club joins race for a fraud-fighting credit card - MarketWatch

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