Credit-card future may involve blinking numbers

Ronald D. White
Los Angeles Times

Your credit cards may start winking at you soon in an effort to keep your data safe.

French digital security company Oberthur Technologies has developed a digital display powered by a micro-thin battery. It will change the three or four-digit CVV number — that stands for credit verification value — on the back of credit and debit cards as often as 72 times every 24 hours.

When this latest defense against financial data theft comes to the United States, as soon early as 2017, it may help credit cards remain the dominant payment option.

Oberthur’s Motion Code technology promises relief to U.S. merchants who haven’t widely embraced the most recent technology upgrade — security chips built into credit cards. The new technology won’t require retailers to buy expensive new hardware to process transactions.

The United States has lagged in adopting technology to protect credit and debit card data, and consumers and merchants have wound up paying for the delays.

Americans account for about 23 percent of purchases and cash volume worldwide, but nearly 39 percent of the world’s credit card fraud, according to the Nilson Report, which tracks payment card data. That’s because the United States hasn’t embraced what is widespread in Europe — EMV smart-chip cards, named for developers Europay, Mastercard and Visa.

The embedded EMV chip is that small metallic-colored square that is usually found on the left of the credit card’s face. The chip issues a code with each use, making it far more difficult to counterfeit a payment card.

“Keeping up with the current EMV chip technology hasn’t been simple,” said John G. Mooney, who specializes in information systems and technology management as an associate professor at Pepperdine University’s business school.

“Merchants have been slow to adopt the chip readers,” Mooney said, partly because the smartcards require a chip reader that can cost $500 each. “Many are still using the old swipe machines, which do not take advantage of the chip.”

As of October, about 2 million U.S. merchants had installed the chip readers, or about 25 percent of the nation’s 8 million retail establishments, according to the Nilson Report. Moreover, some businesses that have the chip readers aren’t using them yet.

The EMV chips also have limitations, doing “nothing for the consumer when he is sitting in front of the computer, tablet or phone, online, and deciding to buy whatever it is he wants to buy,” said Martin Ferenczi, Oberthur’s president for North America operations.

Some have tried to add security to online credit transactions by requiring an added step of verification, such as a number that is texted to one’s phone or sent to an email address.

“The number of transactions that are dropped through this is too high,” Ferenczi said. “Merchants don’t really like it. The phone might not be on or the battery might be dead or you might not be able to get to your email quickly enough.”

Ferenczi said Oberthur’s Motion Code improves the safety of in-store and online payments without expecting more from merchants or consumers.

Lawrence Harris, a finance professor at the University of Southern California’ business school, agreed that “creating a system that changes the CVV number on a regular basis provides an additional level of security.”

“That should be very attractive to merchants and card issuers,” he said. “Consumers can use their cards over the Internet with some additional confidence.”

Oberthur, the world’s second largest manufacturer of chip-enabled smartcards, employs about 1,200 people in the United States and Canada, part of a global workforce of nearly 6,500. About 300 work in Southern California.

The Motion Code technology hasn’t arrived yet at the Oberthur facility in Rancho Dominguez, where workers put the final touches on plastic cards produced at an Oberthur factory in Pennsylvania.

The plastic is mated with the personal information of a future cardholder on something that resembles an assembly line in miniature. The company recently upgraded its network of Oberthur machines, which rapidly improved output, said William Hoskins, the facility’s deputy director.

“The card is finished in one pass through the machine, which is twice fast as the equipment we used to use,” Hoskins said. “We have more than doubled our production capacity to 200 million cards per year.”

The work is taken very seriously at Oberthur. The windows have steel bars as thick as those used to protect fine art storage buildings. Reflective window glass means no one can see inside.

The secured sections of the building sit behind turnstiles so sensitive that workers have run into the glass before mastering the technique.

Smartphones are collected at the door. The lab coats have pockets wide enough for a pen and little else. Getting a job there requires 10 years of employment and residential history.

Theft isn’t the only threat facing Oberthur.

Digital payments using Apple Pay, Samsung Pay, Venmo, Google and other payment systems making inroads into the use of credit cards. Millennials are the biggest concern because they haven’t shown the same trust in banking as previous generations, experts say.

“I don’t think that credit cards are going to go away for quite some time,” Pepperdine’s Mooney said. But, he said, “I would not bet on the credit card industry continuing to be as profitable as it has been.”