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| The Basics | High-tech answers to ID theft
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Brace yourself for retina scans, chip implants and other gizmos that are already replacing plastic but are much more secure . . . if a little creepy.
By Liz Pulliam Weston
Plastic is king -- but perhaps not for long.
Debit and credit cards overtook cash and checks last year as Americas retail payment of choice. Consumers employed plastic in 52% of in-store transactions last year as debit card use surged and cash faded.
But plastic and plastic-based transactions are incredibly vulnerable to fraud. Your cards can be stolen, or the information off the magnetic stripe can be duplicated without your knowledge. All a thief often needs to make a purchase over the phone or Internet are your account numbers and expiration date, information thats often printed right on your receipt by clueless merchants.
| How consumers paid for in-store transactions | | 1999 | 2003 | | Cash | 39% | 32% | | Checks | 18% | 15% | | Credit cards | 22% | 21% | | Debit cards | 21% | 31% |
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Source: American Bankers Association
Those realities are leading some retailers and banks to look for payment methods that are a lot more secure. A few experts predict plastic itself will someday be as obsolete as pieces of eight, replaced by everything from radio-frequency chips in cell phones to fingerprint scans.
A chip on your shoulder -- or arm
Heres a small sampling of payment technologies already in use.
- Cell phone users in South Korea can use their handheld devices to buy from vending machines and convenience stores, with the purchases deducted from their bank accounts. The radio-frequency chips imbedded in the phones have security features that prevent thieves from breaking into the underlying accounts, and most transactions require the user to type a passcode into a special pad.
- You know those microchips you can implant in your pet to identify it at the pound? A night club in Barcelona, Spain, says it has injected similar rice-sized chips in the upper arms of a few dozen regular patrons. When they order drinks, their bank accounts are debited by passing a wand over the chip. No passwords are involved, but the chips are pretty tough to steal.
- Many companies already use smart cards and smart tokens, often key fob devices that fit into computer USB ports, as security devices to authenticate users on their computer networks. These cards and tokens have microprocessor chips that are capable of encrypting information while being difficult to hack or duplicate. IT security experts predict the next application may be in homes, with users sticking such a device into their desk- or lap-tops in order to make secure purchases on the Internet.
- Thousands of Americans now pay for groceries with their fingerprints using special pads at checkout counters. One of the first markets to introduce the technology, the upscale Thriftway in Seattle, has signed up 4,000 customers in the past two years, said store director Brian Bixenman. Stores in Texas, Kansas and Missouri have adopted fingerprint payment systems, and Piggy Wiggly recently said four of its stores in South Carolina had installed the technology.
The lure: convenience, speed and security.
I use (the fingerprint scanner) every day to buy lunch or groceries, said Thriftways Bixenman. People cant steal your finger, and its hard to lose.
Many early adopters are enthusiastic about the new technologies -- sometimes scarily so. One Barcelona man who had the nightclub chip implanted told a newspaper that he would love to have his Social Security number, ID card and credit card on a subcutaneous chip so he would no longer have to carry a wallet.
Leave it alone
The trick, of course, will be getting the rest of us to go along with this brave new world.
So far, most consumers and retailers are reasonably happy with the status quo. Only 1% of the merchants that research firm Gartner recently surveyed said they were exploring alternate payment technologies, like radio-frequency identification chips in cell phones.
(Retailers) really do like the way things are, even with the higher fees and complaints about fraud, said Gartner analyst Avivah Litan. They dont want to have anything to do with these new technologies.
Most consumers, meanwhile, dont want to carry or use a token, device or cell phone to authenticate their transactions, Gartners survey found.
Identity theft: 10 million victims
Using your body to identify yourself and buy stuff brings its own concerns. Privacy advocates note that implanted chips could be read surreptitiously, while the government is sure to want access to vast new databases of fingerprints.
Those who think only bad guys need to worry about this should remember Oregon lawyer Brandon Mayfield, who was arrested and held for two weeks in the Madrid train bombings because the FBI insisted his fingerprints matched those on a bag found on the scene. Mayfield was later released, and the FBI issued a rare public apology when it turned out the governments fingerprint analysis was wrong.
Despite these very legitimate concerns, the rising costs of identity theft may eventually turn the tide toward more secure payment mechanisms. The FTC estimates 10 million Americans were victimized last year, while Gartners studies showed 2 million bank accounts were raided. (For tips on fighting back, read "10 ways to stop identity theft cold.")
Merchants increasingly bear the costs of fraud as credit card issuers charge back retailers for Internet or phone transactions where a signature isnt required. Consumers, meanwhile, often pay with their time, as they try to straighten out trashed credit reports and get stolen money returned to their bank accounts. (For more on protecting your cards, read my column, "22 ways to foil credit card thieves." For more on how to repair a credit report, read, "4 steps to building great credit.")
We will adapt
Personally, I want financial institutions and retailers to do more to make sure the person withdrawing money and charging purchases is actually me. Im not going to let them implant a chip or scan my retinas (another biometric authentication process that gives most people the willies), but I wouldnt mind carrying a key fob that would make my accounts more secure.
I also think Americans are more adaptable than some experts think. After all, American colonists regarded paper money with suspicion for decades after it was first introduced in Massachusetts. Credit cards took about 30 years to gain widespread acceptance, while debit cards managed the transition in about 10. Give us improved security and convenience, and eventually we come around.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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