Wednesday, May 24, 2006

ID Theft - the European lesson.

Recently, a government computer disc containing personal information on more than 26 million veterans was stole (here). This latest news comes in a string of similar reports about information security breaches have once again heightened public concern about the risk of identity theft.

But while ID theft has been a major concern in the US, it does not seem to ever make the headlines in Europe.

The reason is that just that it is harder to steal your ID information but it is also harder to make money with it. And in this matter, the US looks rather underdeveloped. The solution is very simple but it requires a great change of mind.

This MSNBC article makes a short list of the reasons why Europeans do not need worry about ID theft:

  • First of all Social Security numbers are only used for Social Security -- period. (Most European nationals have national identity cards - the exception being the U.K which has precisely a higher rate of ID fraud than in the rest of Europe.)
  • Information is kept private. Western European countries have laws that keep businesses from sharing and selling private personal or financial information.
  • Credit bureaus are maintained by groups of banks that share information strictly with each other so you don’t have so much data floating around.
  • Credit is not as widespread. In fact, the major difference between the US and Europe is that people used deferred debit card (where charges are deducted from checking accounts once a month, instead of daily) rather than credit cards than credit cards. There are also restrictions for getting those debit cards and the banks generally know enough about them to verify their identities.
  • On a more technological level, most European cards use tiny computer chips (i.e. smartcards) instead of the magnetic strips which are easier to reproduce. This "chip and PIN" technology is credited with reducing payment fraud by half in France, where it was introduced in 1992.

By the way, if you wonder why the United States didn’t go with smart cards, it is because the patent royalties would have cost banks more than they want to spend. The patents have run out for a while now but I have yet to see widespread use of those smart cards in the US.


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