A few years ago, I wrote this idea up and presented it a conference about card fraud (in Zurich, if memory serves) and I wrote a couple of articles about it too, but I can’t remember where. Anyway, I’ve been thinking about it again and would like to put it forward for consideration by the highly knowledgeable readers of this blog. So here goes.
Change the law. Have the government pass a bill that says that, as from 1st January 2011, it won’t be against the law to use someone else’s payment card. Result: on 1st January 2011, card fraud falls to zero because there won’t be any such thing as card fraud.
This has two benefits, both of which greatly increase the net welfare.
Firstly, it would to stimulate competition between payment card companies to provide cards that could not be used by anyone other than the rightful owner. This would become a matter of great interest to consumers. After all, who would want a credit card that anybody else could use (much like the credit cards that most people in the world have today)? It wouldn’t be that expensive to implement some new kind of card that only the rightful owner could use. All of the technology that would be needed already exists. In fact, banks outside America could do it in the existing EMV infrastructure: just add a biometric PIN to replace the existing PIN number (in five years’ time many countries will be issued smart identity cards, so many retailers will be adding biometric capabilities to their POS anyway). APACS have been looking at biometrics for a while, so it shouldn’t take too long to come up with a standard for on-card matching of, say, fingerprints. For remote purchasing biometrics don’t work, so there would have to be some other scheme (using mobile phones, I would imagine). In economic terms, the full cost of securing card payments now falls on the banks and not on the taxpayers who have to cough up for policemen, courts and so on.
Secondly, the proceeds of card fraud are often used to fund more serious crime. Choking them off is to everyone’s benefit, not just the payment industry