As the technology wars heat up in the merchant payment industry, the establishment’s foray known as Apple Pay has run into some major identity theft and fraud issues. NFS (Near Field Communications) may be clever. Biometric fingerprint scans into iPhones can make a user feel safe and secure, or just forward the user’s information to unknown third parties. At the core of the problem is the weakest link in the Apple Pay chain. The debit card itself.

Fraud and Identity Theft quickly join Apple Pay

Apple gets a nice .15% fee for every Apple Pay based on Apple’s salesmanship on the idea that their new system is more secure than the average credit or debit card swipe. According to Cherian Abraham, who is an advisor to SimplyTapp, which provides the host-card-emulation technology used to allow contact-less payments on devices using Google’s Android operating system, this problem came to light last month. He exposed it in his original blog post, and the problem appears early on in the Apple Pay process.

When a new credit or debit card is entered into the Apple Pay system, Apple sends the user’s information, such as last four digits of the social security number and location. If the information doesn’t match up, the bank will require a call from the consumer to confirm. The bank usually asks for the user to verify the last four digits of their social security number. Banks are reticent to ask too many questions, which would make the process arduous and more inconvenient, dissuading users from using Apple Pay.

According to Abraham, organized crime rings hand out pre-provisioned devices to mules, who then commit fraud with them. Hotbeds for this type of activity occurring include the areas around Miami, FL, and Dallas, TX. Untraceable prepaid cards are the preferred tool of choice, with their quick ability to exchange for goods or cash. Many times, the fraud ring hits Apple stores areas themselves. Isn’t that ironic? This scourge has shown fraud rates rise from 0.1% of overall debit/credit swipe transactions to up to 6% in recent Apple Pay transactions, dependent on bank and area.

Unable to refute the rampant fraud claims, all an Apple Pay spokeswoman could say in response was

“Apple Pay is designed to be extremely secure and protect a user’s personal information. Banks are always reviewing and improving their approval process, which varies by bank.”

Are fraud and identity theft exclusively an Apple Pay problem? Of course not. The new system just has some weaknesses that the criminal underworld has quickly borne out. Debit/credit card based programs are rife with fraud, as shown by the recent cases of mass consumer compromise at major retailers like Target and Home Depot. Tens of millions have had their personal accounts compromised throughout the U.S. using these now antiquated monetary transfer systems. Criminals with 21st century computer technology easily prey upon debit/credit card users.

These kinds of issues are some of the many upgrades Bitcoin provides over the 1950’s technology of the debit card. Transactional fraud and identity theft are virtually non-existent in the Bitcoin ecosystem. Apple Pay didn’t say they could beat that juggernaut in the debit card system, but they did say it would cut it from it’s current rates, and that hasn’t happened.

The establishment is fighting a tech battle against Bitcoin using technology that’s only sixty years old. It seems to be going about as well as can be expected.

Wall Street Journal Digits Blog also contributed to this story.



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