The best cure for the growing epidemic of credit card data breaches at U.S. retailers is bitcoin.
Hackers are becoming increasingly successful in stealing customer's credit card data from retailers. Just this week, Home Depot made public that credit and debit card data from most of their 2,200 U.S. stores may have been compromised, making it the most widespread security breach to date. They join a not-so-exclusive club that includes Target, J.C. Penney, Supervalu, Neiman Marcus, Michaels, P.F. Chang (twice!), UPS and Goodwill.
It is estimated that one third of the American population has been affected by these recent breaches. And it could be more . . . much more. Target had 40 million credit and debit cards stolen during three weeks, while Home Depot could have been hacked as early as May and the breach ongoing until August. Retailers are also reluctant to disclose a breach because they fear losing business. And because the bank or credit card company is forbidden to notify the customers until the merchant discloses the breach, the full extent of these cyber attacks is not known.
For customers, the inconvenience and cost of a credit card data breach is high. A customer needs take the time to check their statements to see if there have been any charges that are not recognized. If there are, those have to be reported to the credit card company so the customer is not held responsible for the costs. The customer should also put a fraud alert on their credit report as well as check their credit report for any new unauthorized accounts. Then an Identity Theft Report should be made to the Federal Trade Commission. Finally, the customer might opt to have the old card cancelled and a new one issued.
For merchants, the inconvenience and cost of a credit card data breach is high. A merchant pays to launch an investigation, notify customers when a breach is confirmed and make the necessary hardware and software security upgrades to their systems. And Home Depot has offered to make customers whole if fraudulent charges have been made because of the breach. The largest cost is the hit on the merchant's brand. Customers have been inconvenienced and are now unsure of how safe it is to buy from that merchant. That leads to an expensive campaign to win back the customer's trust.
For criminals, the cost is low and the return on investment is extremely high. A small team with some malware is all that is needed. The Home Depot breach was discovered when their customer's credit card numbers were being sold for $18 to $40 a card. Target had 40 million credit cards stolen. You do the math.
Merchants, especially larger retailers, are targets because they acquire credit card information of all their customers at the point-of-sale. If a hacker can break in, they can steal all that data. With a little effort and a huge payout, the economics are overwhelmingly in the hacker's favor.
What is the cure?
There are two approaches. Fix the system or develop a new system.
The best option for fixing the system is improving the security of both the credit card and the merchant's information systems. Chip cards are the newest weapons in this battle. Instead of transferring the credit card number via the swipe of magnetic strip, a one-time code is transferred between the chip and the register. The code is useless to an outsider and the chip is hard to duplicate.
Merchants are testing new and more secure payment terminals at stores. While an improvement, it does not address the fundamental issue of a retailer being a target-rich environment for a hacker.
The best option for developing a new system is bitcoin. Its peer-to-peer transaction payment system is analogous to paying in cash. The merchant shows their QR code and the amount owed for the purchase. The customer uses their digital wallet on their phone to scan the code and confirm that they want to do the transaction.
Bitcoin is then transferred out of the customer's digital wallet into the merchant's digital wallet. Just like a cash transaction, there is no credit card information shared so there cannot be credit card data breaches.
The best a hacker can do is stealing the bitcoin from the merchant if the merchant has lax security. The customer is safe. But to try to hack the customer's wallet is akin to trying to hack each individual transaction. All of a sudden, the economics are not in the hacker's favor anymore.
In our increasingly digital world, hackers and other cyber criminals expose huge vulnerabilities. We can treat the symptoms or cure the epidemic. With credit card breaches, bitcoin cures the epidemic.
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