U.S. slow to embrace credit cards protected with anti-fraud chips

Toronto - At a bustling H&M clothing store in Toronto's chic downtown area, Canadian shoppers rack up purchases on their debit and credit cards, unaware that they're getting a level of protection that U.S. consumers lack.

Canadian consumers are issued credit and debit cards that have embedded chip technology, shorthanded as EMV, which provides them a greater layer of security. The chips make it difficult for criminal rings to fabricate counterfeit cards or traffic in stolen cards.

"There's no question that chip-and-PIN is a much safer technology than signature-based cards, which are a lot easier to replicate," said Diane Brisebois, the president and CEO of the Retail Council of Canada, the national trade group for retailers.

Canada's consumer protection is all the more striking given that the United States generated about 27 percent of payment-card purchases yet accounted for 47 percent of global payment-card fraud, the industry newsletter The Nilson Report said last November.

Why is fraud in the United States, which amounted to more than $3.56 billion in losses in 2010, so high? The report and retailers point to the relatively sparse use of the EMV technology, named for the big companies Europay, MasterCard and Visa.

EMV's embedded chips foil counterfeiters because the chips transmit different unique numbers to the payment processors each time the cards are used rather than customers' name and signatures. In Canada, the chips are paired with personal identification numbers to add another level of security

The chip cards also aren't as exposed to data breaches since names aren't transmitted and thus aren't in the pool of data that computer hackers often seek. Armed with names and card numbers, organized crime rings can create counterfeit credit and debit cards for use anywhere in the world.

When Americans travel to Toronto or other Canadian cities, their cards still work. But Canadian retailers, whose swipe machines generally accept both chips and signatures, are put at greater risk for fraud and losses.

"We still have to accept signature-based cards, so our risk is as great on those transactions, but they're not the majority of our transactions," Brisebois said.

However, when Canadians travel to U.S. cities, such as the New York border hub of Buffalo, they often can't use their cards, especially debit cards, because of the antiquated card readers that many U.S. merchants use.

"We can't take them. They have to use cash," said Nicole Wawrzyniak, the manager of Beauty Plus Salon, a shop in Buffalo's high-end Walden Galleria Mall. "Some of them get angry, but it is what it is."

Canadian merchants were required to shift to the new card readers about two years ago, although the technology was pioneered in Europe, where chip-embedded cards have been the norm for more than a decade.

Some U.S. banks have issued the high-tech cards to wealthy customers who are likely to travel to Europe for business or pleasure, but they aren't commonplace. Most Americans use cards whose only verification is a signature, which merchants often never check.

"What we've had for a number of years is a flawed card system in this country, and as a consequence of this consumers and merchants are frankly less secure in using cards here than they are in other parts of the world," said Mallory Duncan, a senior vice president for the National Retail Federation in Washington.