China’s Predatory Lending
February 12, 2025
The fall of the Silicon Valley Bank happened very suddenly. The bank had gone from a healthy functioning bank to near bankruptcy within 48 hours! As a result, the credibility of the entire American banking system has been brought into question. This is because commercial banks are not like regular organizations. In most cases, they […]
Warren Buffet once told that interest rates are like gravity. If there is no gravitational pull on asset values, then values can be infinite. Little did Warren Buffet know that the world is heading towards a strange phenomenon called negative interest rates. This strange new world is both confusing and counter-intuitive. The common man is […]
We live in a world which idolizes innovation. We tend to idolize companies which have produced some products which can be considered to be innovative. The underlying belief in the capitalistic system is that innovation is beneficial. It is innovation which creates more value, and since the capitalistic system allows the creator of innovation to […]
It is important for investors investing in fixed-income securities to be aware of restrictive covenants. This is because restrictive covenants can have a huge negative impact on the valuation as well as the liquidity of the debt. Bond indentures are detailed legal documents that can have many covenants which prove to be restrictive. However, there […]
The growth story of Tesla is no ordinary story. It is a testimony to what a start-up can achieve if it’s given an adequate amount of funding and good leadership guidance. It would be wrong to classify Tesla as a start-up company now. Tesla is now one of the most popular automobile companies in the […]
Credit cards have become an increasingly important part of every consumer’s finances. Banks now have more credit card customers than they have savings bank accounts. However, the product is relatively new. As a result, banks may not have anticipated the scale to which this business would grow. They are therefore working on with a rudimentary technology even today.
Some parts of the world have realized the growing importance of credit cards and therefore have already moved to a safer technology standard whereas the rest of the world is still in the process of doing so. In this article, we will have a closer look at the various types of credit card technologies that are used in the world today.
The traditional technology that was used when credit cards were first introduced is called a magnetic stripe. This is the technology that is still being used in most countries around the world. The problem with this technology is that it is extremely unsafe for the consumer.
This is because a magnetic stripe technology encrypts all the credit card information on the magnetic stripe on the back of the card. This is the black colored stripe that is used for swiping the card. This contains information like the credit card number, expiry date, available credit limit etc. When a merchant swipes the card, this information is read by the card reader and using this information, the transaction is then closed.
However, there is a significant problem with using this technology. The problem is that anyone can copy this sensitive information from your card using an elementary piece of hardware called the skimmer. This copied information can then be used to create another credit card which is basically a clone of your existing card. The fraudster can then use this card to make purchases that will be billed to you!
Numerous cases of credit card information theft have been reported in the past few years. This has brought the vulnerability of this technology to the attention of the credit card companies. Companies all over the world therefore are making aggressive moves to get off the old and outdated magnetic stripe technology.
The threat posed by the vulnerability of the magnetic stripe technology can be mitigated by using a newer and better technology. This is called the chip and signature technology. The more formal name of this technology is Europay Master Visa or EMV. It is commonly used across the European nations. However, other developing and developed nations including the United States are still in the process of adopting this technology.
The chip and signature technology basically uses a microchip instead of a magnetic stripe to store sensitive credit card information. Thus the information about the card is stored on the card itself. Also, it cannot be read, stored or stolen using hardware like the “skimmer”. A chip based credit card is considerably difficult to clone as compared to a magnetic stripe based credit card.
A chip and pay card requires the merchant to have a point of sale terminal that can read the information on the microchip. Once the information is read, the transaction needs to be authorized with a physical signature. Since physical signatures can be easily forged, the technology is not completely safe. Even though chip and signature protects against virtual theft, it still has no way to protect against physical theft.
The chip and pin credit card is similar to the chip and signature card in many ways. Here too the information is stored on a microchip that cannot be easily cloned. Here too the seller needs a different kind of hardware at the point of sale terminal.
The important difference here is that chip and pin technology requires users to verify themselves with the help of a pin. The pin is considered to be electronic signature and validation of the transaction. Therefore, even if someone were to physically steal your card, they would not be able to use it. This is because they would not have the required pin to electronically authorize the transactions. Thus, the chip and pin technology is considered to be secure against virtual theft as well as against physical theft.
Customers in the United States are against the migration towards chip based credit cards. This is because the Fair Credit Billing Act which is a federal statute prohibits the card issuers from holding the cardholders liable for an amount greater than $50 in the event of a card theft. All major card processing associations i.e. Visa, MasterCard, Discover and American Express also explicitly mention that cardholders have $0 liability in the event of the card being physically or electronically stolen and then misused.
The credit card companies plan to change this. They are of the opinion that a chip and pin system provided a completely safe infrastructure for conducting transactions. If people incur liabilities despite such a secure network, then it is their fault and the banks should not be held responsible for it.
Many customer associations find these new terms unacceptable and are therefore protesting the change that is happening in the marketplace.
Your email address will not be published. Required fields are marked *