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hey credit Warriors credit shifu here and today we are going to be asking the question why don't you s credit cards use chip-and-pin well they are halfway there they do use chip which was brought in a few years ago but typically US credit cards do not have pin numbers for purchases and so to talk about this we'll first have a look at kind of the history or magnetic strips and chips okay so the magnetic strip which is on the back of a credit card it's actually 1950s technology it's very old and it basically just contains the numbers you know the credit card number the expiry date etc okay now the EMV chip which EMV by the way stands for europay MasterCard and Visa the three companies that were behind the technology and the e of EMV chip was created to make a more secure option for credit cards okay and what these EMV chips do is they actually generate a one-time code for each transaction and after that transaction is finished that code is gone it'll donate it it'll generate another one so this actually makes chip much much more secure than the magnetic strips in terms of the ease with which one could counterfeit a car to clone a card now the u.s. for many years didn't use chips and it didn't use pin numbers they just used magnetic strips for everything even years after chip and pin came in in the UK and in Europe etc and actually at that time the United States according to the New York Times in the United States accounted for 50% of global credit card fraud losses even though it only made up 21% of global transaction volume okay so the u.s. was really behind other countries and Visa and MasterCard eventually decided they wanted to force merchants to move over to using at least chip technology okay so they decided obviously they're not the government so they can't make a law requiring it so what they did they decided that from October 1st 2015 if a merchant used a magnetic strip swiped a magnetic strip when the card actually had a chip but they you know they chose to use the magnetic strip anyway the merchants would then be held liable if that transaction was fraudulent okay so they would end up out of pocket because the you know the charge could be charged back to the account or whatever and the merchant would end up losing losing out okay now visa has a little graphic on its website three little graphics that illustrate the way it works so basically after October 1st 2015 if someone you know a customer comes to a merchant with a card that has a magnetic strip and no chip and the merchant swipes it and the transaction is fraudulent same as before the credit card company would be liable and pick up the loss if the person comes with a card that has a chip and a magnetic strip but the merchant chooses not to use the chip and instead uses the magnetic strip the merchant would be liable for fraud okay and then the third scenario is if a person comes with a card that has a chip and the merchant has a chip reader set up and is willing to use the chip then way if it's fraudulent the merchant won't be liable the credit card company will pick up a liability for that so as of the end of 2015 the United States had pretty much switched over to chip but not pin and we'll we'll talk about pin in just a moment but first of all let's talk about what types of fraud Chip and PIN guard against because they're not the same it doesn't actually go together it's not one system like you might have thought since in the UK and in Europe it all came in at the same time as Chip and PIN so you may automatically assume it's just one thing actually it's not so chip guards against a counterfeit type fraud okay like cloning credit cards that type of thing because it generates that one time code for each transaction whereas pin guards against lost and stolen card fraud because if you find a credit card or if you steal a credit card you wouldn't be able to use it in a store if you don't have the PIN number whereas if it was just a signature it would be quite easy for someone to find a card practice the signature maybe 50 times to get it looking almost the same and then go and use that card half the time with signatures the people in stores don't even check it anyway and in the u.s. actually we don't even use signatures anymore but to understand why chip has been you know widely adopted in the US but pin has not you need to have a look at you know proportions of different types of fraud that the credit card companies end up having to pick up the tab for so credit card companies roughly have to pay for about 83 percent they're held liable for about 83 percent of counterfeit fraud whereas we're lost and stolen fraud they only get and they only end up getting held liable for about 67 percent okay so counterfeit fraud was their priority but with lost and stolen fraud these companies have considered the implications of bringing in pin numbers and basically they think it will make transactions too slow and there is kind of an argument to it okay so to force people to use Chip and PIN and never use magnetics and magnetic strips would actually slow down the process quite a lot for example high volume takeaway restaurants like Chipotle notably they don't even use the chip they literally just swipe your card no signature away you go and that's because they do such higher volume particularly between the hours of 12:00 noon and 2:00 p.m. and a lunchtime rush if you had to add inserting a chip then typing in a PIN number and you weren't allowed to use the magnetic strip it adds about 15 seconds per customer so it makes it really slow especially for those high-volume chains but even other chains other restaurants or you know shops are kind of cautious about it and so are the credit card companies Allen Weinberg the co-founder of payment methods consultancy firm Glenbrook partners told the Atlantic the credit card market is brutally competitive so the first issuer who goes with pins has to worry about whether the consumers are going to say oh that's the most inconvenient card in my wallet there's this perception that maybe it's going to be less convenient even though some merchants would argue that pins take less time than signatures now that was from a few years ago because recently over the last year signatures have now been phased out anyway particularly for smaller purchases so it's literally just swipe and go and those stores like Chipotle or whatever they would prefer to take the risk of being held liable for a certain amount of fraud than risk slowing down their lines they've waited up financially and they've found it's more profitable for them to just absorb a small amount of fraud rather than actually use pins and make it more secure which to be honest if they're willing to do that it doesn't really pose a problem for the consumer so will the u.s. ever end up going to pin well Dena de Merrill who is a director at JP Morgan Chase also told the Atlantic all the merchants are rolling out the capabilities at different times this is talking about chip and not exactly in the same way and so we couldn't guarantee that the experience if we added pin would be positive will we ever move to pin in the future that's still out sounding issue so you know they're not saying yeah we eventually will it's still an outstanding issue they haven't even decided yet they're weighing it up too and thinking you know we can absorb a certain amount of liability for stolen card fraud it's better for us than using pins issuing pins and actually slowing down payment processes with pins one u.s. credit card issuer does currently issue pins which is Barclaycard but that's probably because they're a British bank and they've already done it in the UK so it's not that big of a deal for them to just issue them in the US but I don't think you necessarily have to use your PIN some people might say hey but don't debit cards have pins well yes debit cards have pins because you can use them as ATM cards but don't forget when you use a debit card in a credit card terminal in the u.s. you can actually hit credit and bypass the pin and it just runs it through as a credit card without a pin also the US companies do have a look at what's going on in Europe and another thing that can be noted is that criminals will go for the low-hanging fruit so because of you know you're bringing in the pin numbers and making lost or stolen card fraud in person transactions more difficult okay the criminals have turned to using lost or stolen cards online for online purchases so while in-person fraud has gone down online purchase fraud has gone up rapidly so it actually almost cancels it out in Europe so the American credit card companies are probably looking at that as well and weighing up is it worth it so there you have it guys basically it's a decision by the credit card companies after weighing out the fine implications and basically saying well let's allow a certain amount of fraud we'll just absorb it and you know for the consumer it doesn't really matter because typically on most credit cards you are not held liable for fraudulent charges on your cart so don't feel that it's super bad that we don't have Chip and PIN in the US you are still protected just in a different way guys if you've liked this video please leave a comment let us know what you think we'll put below some of our favorite credit cards in the u.s. most of them don't have pins feel free to check them out for some of the best deals out there learn more about them as always it is an affiliate link helps out our show so if you do want to see the advertiser disclosure it's in the bottom of the description section of this video thanks for watching we'll see you next time [Music]