Those days of calling your bank to let them know that, yes, you really are in Thailand, and yes, you really did use your credit card to buy US$200 in sarongs, might be coming to an end.
Payment processing company Visa Inc plans to roll out a new feature this spring that would allow its cardholders to inform their banks where they are automatically, using the location function found in nearly every smartphone.
Having your bank and Visa know where you are at all times might sound a little like Big Brother, but privacy experts are actually applauding the feature, saying that, if used correctly, it could protect cardholders and cut down on credit card fraud.
Credit and debit card fraud costs consumers and banks billions of US dollars each year, and that figure has been growing as data breaches have become more common. The banking industry had US$1.57 billion in debit card fraud in 2013 and US$4 billion in credit card fraud in 2012, the latest years for which data are available, according to the US Federal Reserve.
Facing these high costs, banks and the payment processors have been stepping up their efforts to cut down on fraud, and Visa’s announcement is just one small piece of this drive.
Here is how it works: Starting in April, banks will update their smartphone apps to include Visa’s new location-tracking software. If the consumer opts in, the Visa software would, over a period of time, establish a client’s home territory in a roughly 80km radius. If the person uses his or her Visa card at stores in that area, those transactions would be considered at low risk for fraud.
When that person travels outside their home area, the phone would notify Visa that they have entered a new city or country, using either the phone’s cellular data plan or the next time the phone connects to a Wi-Fi network. When that person uses their Visa card for a transaction in that location, Visa would already know he or she is there and would be less likely to flag the card for a fraud alert.
“We will be able to compare the merchant’s location to the most recent cellphone location to show it’s a less risky transaction,” Visa executive Mark Nelsen said.
The feature is optional and can be deactivated at any time. Visa also says none of the location tracking data would be used for marketing purposes.
One type of fraud Visa’s feature would directly address is counterfeit credit cards. Counterfeit cards look like any other credit card, but have someone else’s information on the magnetic stripe.
Nelsen said Visa hopes the new security feature would prevent “a good portion” of fraud perpetrated with counterfeit cards, because those cards are often used in a location other than where the actual card owner lives.
Visa’s new anti-fraud measure, which the company announced on Thursday last week, would not address every potential fraud situation. For example, if a cardholder has both their phone and credit cards stolen, Visa would not necessarily know that the card was at risk of fraudulent use until the cardholder contacted the company.
Visa is just one of dozens of financial companies trying to figure out the best way to use new technologies to combat fraud. MasterCard Inc said on Friday last week that it is rolling out a pilot program later this year that would integrate biometric data, such as face, voice or fingerprints, into its payment system to help authenticate transactions.
Privacy experts were generally warm to the idea, as long as banks are clear on how a customer’s smartphone location would be used.
“When a trusted party — and I think people think of their bank as a trusted party — is looking out for you using what technology they have, I think people will welcome that,” the Future of Privacy Forum’s Jules Polenesky said.
Center for Democracy and Technology director of consumer privacy Justin Bookman also supported the feature, as long as banks are clear it is optional and explain how the data are being used.
“We effectively share our location with our banks every day when we swipe our credit cards,” Bookman said. “As long as it remains optional, I believe it’s a worthwhile idea.”
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