Coming soon to a wallet near you – LCD screen smart cards!

MasterCard has recently announced its plans to help banks issue cards with LCD displays to US consumers in 2011. 

The LCD readouts will offer useful information to consumers, such as available credit, current balance, recent transactions, or even coupon codes from merchants or special messages from banks. “It can be considered as the Swiss army knife of payment cards,” said Cyril Lalo, Chief Executive of NagraID Security, which produces the cards.

The company has been working for several years to meet the demands of embedding a screen on credit cards, which include cost, battery flexibility and durability. The screen must endure everyday bending which comes with sitting on cards in wallets, and the batteries should have a lifespan of three years or more.  These obstacles have all been cleared, according to Lalo, and they are ready to start implementing the designs.

Though a screen-enabled card is costlier to produce compared to existing magnetic stripe cards, its cost is comparable to other technologies that enhance security, like digital tokens “smart cards” released to corporate network users.  Many European and Asian banks are already using some of these cards, with two banks competing to be the first in the United States. The trial will likely begin next month, with the cards likely to be offered by the end of the year, he added.

The card’s US version will initially offer more modest features, which are designed to improve security for online purchases.  The card needs to be connected to the network of the bank to display real-time information like account balance. While Europe-based merchant payment systems are designed for this, US systems are not.

One of the first major advantages of the new cards is that they will be able to generate a dynamic CVV.  The CVV code is a 3 digit code embossed on the back of the card (or a 4 digit code on the front of an Amex card).  This provides an added layer of security as the CVV info does not appear on the magnetic stripe.  Therefore, if a hacker was to steal the magnetic strip info, they still would not have the CVV code.  The CVV code verifies that the actual card is in hand.  The majority of MOTO (mail order / telephone order) and online merchants now ask consumers to provide the card verification value (CVV) code embossed on the back of the card.  As well, the merchants receive a preferable rate from the processor for doing so, as it helps to prove the legitimacy of the transaction.

“Most fraud doesn’t come from someone who steals the card now. It comes from people who make a copy of the card,” said Lalo.

While the CVV code initially enhanced security, its effectiveness has radically weakened, as hackers learned how to steal the CVV code saved with transaction data.

NagraID card’s screen maintains the usefulness of the CVV, as it creates a new code for each transaction (known as a “dynamic CVV”).  Those who steal codes in databases of old transactions will find that the data are of no use for online crimes.

While this initially won’t do much to prevent in-person fraud, screen-enabled cards could be a simple way to reduce Web fraud, said analyst Avivah Litan, an analyst at Gartner.   And since the vast majority of credit card fraud occurs in “card not present” settings, this should go a long way in cutting down overall fraud rates.

“I think the addition of the dynamic-one-time password to the display is a great idea since it enables strong cardholder authentication without having to invest in much more costly chip technology,” said Litan.

Majority of proposals to improve US card security include the use of smart cards with computer chips, requiring merchants to buy new card readers. While the ability to produce and issue these cards at a reasonable cost is there, the bigger issue is the infrastructure.   This would require hundreds of thousands of merchants to replace terminals, POS systems, card reader and would require an array of changes to various systems. 

The dynamic CVV screens, on the other hand, utilize existing technology.  For this reason, screen-enabled cards will be a success, whereas various attempted credit card upgrades have fallen short, said MasterCard product manager Sebastien Pochic.

“The main difference with this product is it doesn’t impact the infrastructure,  All the acquiring infrastructure is already there. As a bank, you only need to validate this dynamic value.”

The screen cards will ultimately add other features, but not until merchants include the ability to read Near Field Communication chips in stores. Then, it can download useful data every time a NagraID is read.

However, banks may not completely understand the implications of providing this information to consumers. In a recent computer security conference, representatives of NagraID told observers that the new screens would result in additional revenue, since consumers would be keener to use their cards after checking their balance. However, other studies show that consumers usually spend less when they are aware of how much they are actually spending.

“It wouldn’t change the habits of those that have plenty of credit or money in their accounts … but it would change the spending habits of those who don’t, and they would more than likely spend less,” said Litan.

While this might not be good for banks, this is definitely good news for consumers.