Why U.S. Retailers Are Still Vulnerable to Card Fraud

Bloomberg Business Week Technology Data Security

By Olga Kharif and Bianca Vázquez Toness April 10, 2014 

 

Photograph by Kristoffer Tripplaar/Sipa via AP Photo

A chip-based EMV smart card

After last year’s massive security breaches at Target (TGT) and Neiman Marcus, data security pros urged U.S. retailers to upgrade their credit and debit card technology to reduce fraud. Companies have been slow to embrace the more secure payment systems that have been widely used in Europe and Asia for years, mostly because of the expense and a lack of synchronization among retailers, credit card providers, and banks.

Many companies are behind schedule in updating their systems to comply with a chip-based smart card standard known as EMV (for Europay-MasterCard (MA)-Visa (V), the companies that first backed the technology). Credit card networks have set an October 2015 deadline for most U.S. merchants to upgrade their payment systems.

EMV is considered more secure because it’s harder to copy account numbers and security codes from chips than from the magnetic strips on most cards used in the U.S.  EMV cards create a unique code for each transaction, making them more difficult to hack or counterfeit than striped cards.




Merchant Warehouse, which processes credit and debit card transactions for 80,000 U.S. merchants, projects that only about 60 percent of its clients’ locations will be ready to accept chip-based cards by the deadline. Richard Crone, chief executive officer of payments advisory firm Crone Consulting, says more than half of U.S. merchants will miss the cutoff.

Story: Why Heartbleed, the Latest Cybersecurity Scare, Matters

 

One reason for the delay is the upgrade’s high cost—$500 to $1,000 per payment terminal, according to researcher Javelin Strategy & Research, a division of Greenwich Associates. Retailers are also concerned that the switch will slow checkout times and that it remains unclear how the EMV software will work with debit cards. “It is not a question of just turning it on,” says Margaret Chabris, a spokeswoman for 7-Eleven (3382:JP). “EMV specifications are still being finalized.”

....
For terminals to provide added security, customers must have chip-enabled cards. “Part of the reason we haven’t pushed faster is there’re just no cards out there for acceptance,” Cook says. Today, with about 1 billion cards in use in the U.S., just 20 million chip cards have been issued, according to Smart Card Alliance. Only 20 percent to 30 percent of U.S. card holders will have the new cards by the deadline, says Nick Holland, an analyst at Javelin.

The new cards can cost up to $2 each, compared with pennies for the magnetic-stripe models. “We’ve got 10 million cards in inventory out in the field,” says Mark Putman, a senior vice president for First Data (KKR), which offers prepaid card services. “At $2, we are probably looking at a $20 million investment, which I am going to defer for as long as possible.”

Retailers are willing to do their part to improve security, the National Retail Federation says, but banks and card companies also have a responsibility to update their systems. That includes making and issuing chip-enabled cards.

Blog: The FBI Warns Retailers About Thieves Armed With Foil

 

The price for not complying could be high. Credit card companies have said most retailers and banks will be liable for some fraudulent in-store transactions if they don’t have the new system. Even so, “merchants aren’t crazy about this migration to EMV, and many of them are fighting it tooth and nail,” says Julie Conroy, an analyst at Aite Group.

 

 

 

Apprenticeships: What we can learn from Germany [BUSINESS WEEK]

What Germany Can Teach the U.S. About Vocational Education

Posted by: Harold L. Sirkin on April 29, 2013

http://www.businessweek.com/articles/2013-04-29/what-germany-can-teach-the-u-dot-s-dot-about-vocational-education

For years now, U.S. educators have invested massive amounts of talent and money on two goals:

• preventing students from dropping out of high school and 
• increasing the percentage of high school graduates who go on to college.

We do everything possible to encourage college attendance. In the 2011-12 academic year, for example, one program alone—the federal Pell Grant program, intended to help low- and moderate-income students finance college—cost taxpayers $34.5 billion, about half the entire U.S. Department of Education budget. 

Yet many Pell Grant recipients never graduate. They flounder; they drop out; they become statistics.
How can we prevent such waste?

A new report from the College Board, funded by the Bill & Melinda Gates Foundation, offers a variety of useful ideas, such as larger grants for students who take heavier college course loads. Tougher schedules show that students are serious about graduating.

That’s one good approach. But let me suggest another, which Germany has pioneered.

Our friends in Germany know—as we should—that some students are bored by traditional studies; some don’t have the aptitude for college; some would rather work with their hands; and some are unhappy at home and just need to get away. They realize that everyone won’t benefit from college, but they can still be successful and contribute to society.

Americans often see such students as victims. Germans see these students as potential assets who might one day shine if they’re matched with the right vocation. And it has a system in place—a partnership of employers and unions with government—to do the matching and provide the necessary training.

As the New York Times Magazine recently noted, Germany’s vocational education program doesn’t focus entirely on factory work. Consider the story of the noted chef Claus-Peter Lumpp. “Lumpp’s culinary ascent began with the simple urge to drop out of high school around the time of his 16th birthday,” the Times’ Nicholas Kulish reported. “His widowed mother had remarried, and the family moved to another town. Everything felt off: the new school, the new people. His mother gave him permission to leave school, but only if he found an apprenticeship.” Lumpp found that apprenticeship in the kitchen of the Hotel Bareiss. Today, Lumpp’s Restaurant Bareiss has a three-star rating from the prestigious Michelin guide—and most of the chefs in his kitchen were mentored under the same system that brought his talents to the fore.

As a result of this system, few Germans find themselves unemployable. The youth unemployment rate, for example, was just 7.7 percent in February, well below that of the U.S. (16.2 percent officially, excluding those who have dropped out of the labor market) and the euro zone as a whole (23.9 percent). Overall unemployment in Germany was just 5.4 percent in February.

Administered by the Federal Institute for Vocational Training and Education, Germany’s vocational education program is a dual system: Students learn in the classroom, and they learn by doing. Typically, trainees attend vocational school one or two days per week, studying the theory and practice of their occupation as well as economics and social studies, foreign languages, and other general subjects. They also do a working apprenticeship in their chosen field. During this period, trainees receive about one-third of the salary of a trained skilled worker.

Not surprisingly, perhaps, a majority of German students (some 51.5 percent) choose this path.
America for too long has attempted a cookie-cutter approach to secondary education: Stay in school; go to college; and we’ll all be happy. To our continued consternation, it doesn’t always work.
If America wants to remain competitive, we have to keep our young people engaged.  Germany has the right formula. U.S. business and political leaders should learn from the German approach and invest in creating and supporting a German-style vocational education system. Businesses will get the skilled workers they need, young people will see new career opportunities open up to them, our middle class will be strengthened, and our economy will benefit.