Social Democracy in America and Germany
Socialism-Fearing, Flag-Waving Drive-In Addicts

Europe In the Vanguard

Kevin Drum explains why America hasn't adopted the 'Chip and Pin' type of debit card which is almost universal in Europe:

So why don't we have them in America? Well, it's expensive, because merchants would all have to [upgrade their equipment]. But this is obviously not a very satisfactory answer. After all, you could phase in the new terminals over a period of years, making it part of the usual equipment maintenance cycle. In Europe they seem to think this cost is worth it in order to reduce fraud, so why not in the United States? Here's an article written a few years ago on the subject, prompted by complaints from U.S. travelers that they sometimes have trouble using their credit cards overseas:

In addition to the number of terminals that would need to be changed, many experts say that the cost of fraud in the United States is considered manageable right now, taking away further incentive to change. "I don't think, based on my discussions with big banks that issue most credit and debit cards, or with card associations, that they envision rolling out so-called chip-and-PIN in the U.S. today," [says Don Rhodes, director of risk management policy at the American Banking Association].

But why is the cost of fraud considered "manageable" in the United States? Partly it's because fraud rates have long been lower in the U.S. than in Europe thanks to the nature of our payment network. But there's more to it. It's also because American banks and card companies have successfully pushed a great deal of the cost of fraud onto merchants and consumers. Stricter rules prevent this in most European countries, which means that banks and card companies have a stronger incentive to cut down on fraud and identity theft.

This is the price we pay for loose regulation of the credit/debit card industry. Card companies don't really have much incentive to reduce fraud since they don't pay the bulk of the price for it. In Europe they do, and voila! With profit as an incentive, they figured out a way to reduce fraud significantly. The result is lower costs for consumers and less risk of identity theft.

Efficient paperless payment is one area in which Europe is light-years ahead of the U.S. I can testify to fraud rules from personal experience. I remember a few years ago having my wallet stolen during Karneval in Cologne. By the time I woke up the next morning late afternoon and realized it was gone, two cash withdrawals had been made from my account: €500 Euro (the daily maximum) just before midnight, and €500 just afterward. Clever bastards.

I had no idea how the thieves had figured out my PIN code, but they had. So I went to my bank to register the theft. I wasn't even expecting to get any money back, I just wanted a new card. Instead, they immediately paid me back almost the entire amount. All I had to do was assure them I hadn't writting my PIN code on a piece of paper with the wallet itself, as that would have been culpable negligence. That gave me a warm feeling inside...