|ATMs play bigger role in identity theft
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Johnson says there's a silver lining for nervous banks: "The solutions are not expensive on an individual unit basis and can be deployed in the current ATM environment. It's not like you need to swap out ATMs."
Plastic or cash?
That's all well and good for banks, but where does it leave consumers when their snatched debit cards lead down the rabbit hole to identity theft?
Foley says one 2007 study estimated that identity theft cost U.S. businesses and consumers $56.6 billion in 2005 alone, a bill that ultimately gets slipped to the public in higher banking fees and product costs.
"Let's be very upright here: When we're talking about credit and debit cards, we're talking about trillion-dollar industries," says Foley. "They're not affected by $56 billion in losses. That's not even 1 percent."
Litan predicts the ultimate solution to the ATM/debit fraud dilemma may involve the chip-enabled "smart card," which is more difficult to clone. The chip in a smart card is combined with the user's PIN -- a system known as "chip and PIN" -- to verify transactions as nonfraudulent.
But smart-card technology has been slow to catch on due to its higher costs. The use of smart cards raises the question of who's going to foot the bill for all those chip-enabled merchant point-of-sale terminals.
"I'm starting to hear talk from some major banks that they are going to move to it. It's just a matter of time," Litan says.
Chip-and-PIN technology is being used in Canada and Mexico, and all over Europe and Asia, Litan says.
"The United States is the last holdout," she says. "That may not be the best technology at this point but we need to keep it ubiquitous and interoperable around the world. People traveling around the world can't have different cards for different countries."
Despite the growing risk of fraud during ATM transactions, Foley says plastic is here to stay for one very good reason.
"If we all go back to using cash, the identity thieves are going to go back to using clubs. It's called armed robbery. That's why we went to credit and debit cards in the first place."
Jay MacDonald is a contributing editor based in Texas.