MasterCard International is testing an anti-fraud system that detects counterfeit cards by comparing the electronic noise emitted by a magnetic stripe card when swiped through a point of sale terminal to a recorded version of the noise.
Each magnetic stripe emits a unique, low-level noise determined by the random arrangement of the ferrous oxide particles on the tape. When a thief makes a counterfeit copy of a card, the account number may be the same, but the card sings a different tune.
The sound comparison system is called Magneprint, and MasterCard is developing it for commercial use with a partner company, Mag-Tek Inc., that primarily sells integrated circuits and magnetic heads. Esmond Chan, a MasterCard vice president and regional head of security and risk management in Asia-Pacific, said MasterCard aims to test Magneprint with a limited number of merchants by yearend, but does not expect any imminent global rollout.
"The strategy will be to target the high-risk merchants," said Mr. Chan, who is based in Hong Kong. "We're talking about a small percentage of our merchant base, and we'll be able to address the majority of our problem."
The problem - thieves who create counterfeit cards after capturing card numbers in pocket-size devices called "skimmers" - became prevalent in Asia in the mid-1990s, and has since spread around the world. H. Spencer Nilson, publisher of The Nilson Report, estimates based on interviews with major card issuers that skimming is the third-largest reason for fraud losses, representing about 10% of the $956 million that U.S. issuers lost to fraud in 1999.
According to Mr. Nilson, the technology behind Magneprint was developed at Washington University in St. Louis. He said Mag-Tek, which is based in Singapore and has offices in Carson, Calif., is not the only company working to fight skimming. Maxell, a Fair Lawn, N.J., company that manufactures magnetic stripe cards, is working with Xico, a magnetic stripe technology company in Chatsworth, Calif., on a new type of magnetic stripe meant to prevent this type of fraud.
In an earlier response to fraud, the bank card associations specified that a three-digit number should be encoded on the magnetic stripe that only the issuing bank could read. Visa called this transaction verification number the CVV, for card verification value; MasterCard called it CVC, for card verification code.
But skimmers can read and store these numbers and clone them onto counterfeit cards. Thus, the thieves "fool the issuer into believing this is a legitimate transaction," said Mr. Chan of MasterCard.
Gregg James, special agent for the U.S. Secret Service's financial crimes division in Washington, said that all the card companies are working on ways to fight skimming, and his agency is focusing on it "because we don't see a fix down the road." Mr. James said it can cost as little as $10,000 to get into the counterfeit credit card business. "You can go on the Internet and buy everything you need," he said, including the skimmer, plastic, embosser, coder, and tipper, which colors the raised numbers and letters.
Card industry experts said they doubted that Magneprint was the answer to skimming. Mr. Nilson called it impractical, given that there are hundreds of card manufacturers around the world, and it would be nearly impossible to coordinate the registering of Magneprint codes.
Jerome Svigals, director of the Smart Card Institute in Redwood City, Calif., and an original developer of the magnetic stripe, said the Magneprint system might not work if the sound properties of a magnetic stripe changed over time, through wear and tear. He also said it would cost a lot to upgrade point of sale terminals so that they read sound properties. "You have a pretty tough challenge to get this in all of the readers around the world," he said.
Mr. Chan said normal card usage "won't change anything" about the sound property, and one would have to forcefully scratch the stripe to alter it. He also said Magneprint works with the existing terminal infrastructure, so there would be no upgrade cost.
But Mr. Svigals said thieves could divert skimmers from one place to another to dodge the Magneprint technology. "People doing skimming are pretty smart, and would quickly determine this property has been installed, and where it has been installed."
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