Credit card companies investigate ways to limit e-fraud

Journal Record, The (Oklahoma City), Sep 28, 1999 by Bob Tedeschi N.Y. Times News Service

Credit card companies love the Internet, since they pocket a share of most e-commerce transactions. But like everything in the world of revolving credit, that love has limits. Stolen cards used to make purchases online, in particular, cost credit card issuers millions each year -- pushing the price of doing business on the Web higher for banks, merchants and, ultimately, users.

So even as the major credit card companies and the banks that issue those cards explore ways to build Internet market share, they are also looking for creative ways to limit fraud.

The recent launch of the American Express blue card, which comes with an embedded computer chip, is an example of both efforts. Since the card's chip can access a user's personal information, it will eliminate the hassle of typing in that data in every Web purchase -- and, American Express hopes, encourage people to use its card. At the same time, the chip limits the fraud by guaranteeing the shopper's identity and offering greater protection to the buyer's information during the transaction.

The key to these features is a piece of computer hardware that, until now, has been foreign to the desktop: a credit card reading device. Starting in November, blue card owners will be able to obtain such a device, which they will be able to plug into their PCs, enabling them to swipe the card at home much like a sales clerk would at a retail store.

Other credit card issuers are exploring similar technologies. One company that makes a card-reading device for personal computers, UTM Systems (www.utmsystems.com), recently announced that four major U.S. banks affiliated with both Visa and Mastercard International will begin distributing its system free to consumers before the end of the year. UTM's founder and chief executive, Robert Lee, declined to name the banks, but said they served "well over 10 million customers."

The device, which costs the card issuers $6 a unit, is simple. When a user is ready to make an online purchase, the credit or debit card is placed in the UTM card reader, which is inserted into a floppy disk drive. A small window then appears on screen, asks for a personal identification number and sends the encrypted information to the retail site. When the transaction is complete, the window disappears.

David Robertson, president of the Nilson Report, a credit card industry newsletter, predicted that credit card companies would be aggressive in spreading such technologies. "American Express is the first, but you'll see everyone start to do this by the end of the first quarter of next year," he said. "It's inevitable."