If you’re a younger reader, you may not realise the amount of changes that have happened to the humble credit card to get to where we are now. From its origins in the 1950’s to the most advanced contactless payments, learn more about cards, and credit card security.
The credit card system’s origins can be traced back to a conversation between a restaurant owner and Frank McNamara, when the latter had left his wallet at home when needing to pay for a meal. His wife covered the tab and he left thinking there was definitely another way. When talking about how he didn’t want this to happen again, he spoke to his lawyers about his idea and formed the first type of credit card – Diner’s Club.
Back then, however, the limitations of computing made a lot of difficulties. For a start, nobody could confirm the buyer was the owner of the card, with the early versions just being printed paper with a name and signature, no built-in chips or expansive database. The card wasn’t an instant payment either, it was essentially an IOU at first.
Many then followed in Diner’s Club’s footsteps. American Express and Carte Blanche worked in much the same way, recording a monthly bill of all payments made through the card’s services, and were categorised as travel and entertainment cards.
It wasn’t until BankAmerica and InterBank Master Charge cards, which would eventually evolve into Visa and MasterCard respectively, that true credit cards fully came into existence. The banks would allow their customers to pay the bills from their transactions over time through the cards’ credit scheme.
In the 1950s, when computers were a rarity, only telephones could be used to confirm a purchase before making the sale. As expected, fraud eventually appeared for these transactions, leading to the first measures to prevent this being brought in. The first attempt at this was through voice authorisation. The companies who manufacture the cards would have a call centre that merchants would have to call in order for a transaction to be made. This system has survived to the current day, even if now relegated to a secondary option.
Audio responses by the card issuers were next, in which merchants would call them to enter the card holder’s information, which would verify the purchase. When touch-tone phones became the norm, this changed to merchants entering the information using the keypad, with the system then either issuing an approval code or declining it. Despite the improvements made to reduce fraud, card issuers wanted to make the purchases even more secure and haven’t stopped working on new ways to avoid this danger.
The Rise Of The Chip
It was then that magnetic stripes became used on the back of cards, carrying information that could identify the cardholder and either approve or decline the purchase based on the current card holder’s information. Whilst an improvement, it carried its fair share of problems, due to it being easy to use once stolen and can be duplicated easily.
Due to these problems, the Chips were developed. The first case of this was a joint project between Europay, MasterCard and Visa in Europe called the EMV. It encrypted the data during the transaction by creating a temporary token to send to the company authorising the card to verify the payment. Offline transactions at the time of the chip’s introduction weren’t as secure, but required less steps and were a useful option if a merchant didn’t want traffic to become too much for their network.
Though at first contact chips requiring the chip and PIN format was the only option and required physical contact to work, contactless has now appeared and become a staple form of payment.
There’s little that needs to be said on how Chip and PIN functions. You sign in to make a purchase with your PIN number after inserting the card and confirm it. There was originally the Chip and Signature option, though that quickly became irrelevant in Europe, and is starting to fall off in America. Signatures were too easy to forge, and most merchants couldn’t verify the signatures matched perfectly.
Both credit and debit cards now use the Chip and PIN system to enter into an ATM for a transaction, with the card issuer being able to inform you of whether or not your card is capable of using the system. In the rare case Chip and PIN isn’t an option, it will still be useable in Europe with human assistance.
Contactless chips use Near Field Communications (NFC) as their protocol, allowing for wireless communication with a terminal that is the cause of them needing only a tap against the transaction device.
As expected, the only real difference in use is that contactless cards are far faster.
The problem with the contactless option that raises questions for credit card security; someone with technology capable of Radio-Frequency Identification (RFID) could potentially steal information from the credit card if close enough, being behind them in a queue, for instance. A metal or tinfoil card case is a good way to prevent this as the metal casing blocks the radio waves used in RFID.
Here, we reach the current state of card security. It’s evident that a lot of development has gone into bringing credit cards to their current form of payments and protection and though there is still room for improvement, we have reached a level in which most transactions can occur without the slightest worry.
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