MONEY credit cards

AmEx’s Battle With the Feds Could Mean Lower Costs for Credit-Card Users

The American Express Co. logo, along with those of Visa Inc. and Mastercard Inc., are displayed in a shop window in New York, NY
Scott Eells—Bloomberg via Getty Images

American Express is facing off against the Justice Department today in a court battle that could shape the future of the credit card industry.

The suit, which concerns the fees merchants pay every time a customers uses plastic, is the culmination of a four-year war between federal authorities and the New York-based credit card giant. Its outcome won’t just affect the way American Express does business, but will likely impact consumers at the checkout counter as well.

Currently at stake is AmEx’s “take it or leave it” policy. Every time a customer pays with a credit card, the merchant must pay a processing fee, generally between 2% and 3% of the total purchase. American Express — which, according to the government, charges the highest merchant fees of any card network — forbids its merchant partners from offering customers incentives to use cards that are cheaper for the vender to accept.

The Department of Justice argues that the policy is anti-competitive because AmEx—which accounts for 26% of all money transacted through credit cards in the U.S.—is too important for most businesses to drop. It also claims customers, even those who use a different card, end up paying for AmEx’s higher rates because merchants compensate by increasing prices.

American Express, of course, disagrees. The company says it is too small to have an anti-competitive effect on the market. Court documents show that there were 53.6 million AmEx cards in circulation in 2013, compared to 178 million MasterCards and 254 million U.S.-issued Visa cards. It also argues these higher fees are necessary to provide merchants with services like fraud reduction programs, financing and marketing, and data analytics.

This is the latest battle in a four-year-old war over credit-card company business practices. In 2010, the Justice Department filed a lawsuit against MasterCard, Visa, and American Express for various merchant restrictions that the department found ultimately result in consumers paying more for their purchases. Visa and MasterCard quickly settled, later agreeing to a record-high $5.7 billion antitrust settlement with U.S. merchants over alleged fee fixing. But AmEx held out. In 2013, it reached a separate peace with merchants, allowing them for the first time to add a surcharge to AmEx purchases as long as they added the same charge to all credit-card transactions — the “take it or leave it” policy. But the settlement failed to satisfy the Justice Department, which now seeks to force AmEx into the same deal it cut with Visa and MasterCard.

For AmEx, the stakes are high. Merchant fees make up 65% of the company’s revenues, and it depends on high processing rates to offer its customers benefits like discounts and frequent-flyer miles. A loss would allow merchants to offer customers incentives for using a competitor’s card, and could cut into AmeEx’s profits by pushing the company to lower its merchant fees.

For consumers, a D.O.J. victory could potentially mean lower prices. Many businesses have historically priced in credit-card processing fees by raising the cost of their goods by 1% to 3%. Past settlements have allowed merchants to pass on these fees directly to credit card users, theoretically sparing cash and debit customers from having to share in the cost of accepting credit cards. However, many have questioned whether merchants are actually passing their savings onto consumers.

If American Express loses, merchants would be allowed to offer additional discounts to credit-card users with cards that charge lower fees. This won’t pacify those who say customers are paying the same prices as before plus new credit-card processing fees, but it does mean certain credit-card users might pay less than others.

Don’t expect AmEx to give up. The company may “need those rules in place to remain competitive with Visa and MasterCard,” Darren Bush, an antitrust law expert at University of Houston Law Center, told Bloomberg. “They’re willing to put more on the line.”

MONEY credit cards

The One Credit Card You Need to Ease Pain at the Pump This Summer

paying for gas
The right credit card can provide an antidote to pain at the pump. Ana Abejon—Getty Images

You can get as much as 5% back if you swipe it right.

If you’ll be spending part of this July 4th weekend in the car—whether that’s for a day trip to the beach or a 500-mile drive to visit the in-laws—be prepared to pay more at the pump this year than last. A gallon of regular gasoline sits at $3.70, according to the U.S. Energy Information Administration, or about 9% higher than in 2013.

Those in the know, however, will be able to get a discount that mitigates the price escalation. How, you ask? With a cash back rewards card that gives them some extra juice at the gas station.

The picks that follow can get you up to 5% back on your purchase at the pump. You’ll notice something about these selections: None of them are gas-station-branded cards. The ones below offer more flexibility and more money back.

If you want to get the most money back possible…

We at Money are pretty big fans of the class of credit cards that offer 5% cash back in rotating categories. Within the category, both the Chase Freedom and Discover It offer 5% at the pump from July to September on the first $1,500 spent. That means if you spend $250 a month on gas, you’ll end up saving almost $40.

If you’re planning a cross-country road trip, it might pay to sign up for both. The Freedom and It cards are fee-free, so there’s no downside to doubling up.

But if you’re only planning on getting one, go for the Chase Freedom, which offers a $100 sign-up bonus after you spend $500 in the first three months, says CreditCardForum.com’s Ben Woolsey.

If you’d rather have an all-purpose card…

Managing a number of credit cards for specific categories can be daunting for some consumers. If that’s you, check out solid cash back cards that offer good rewards throughout the year. BankAmericard Cash Rewards holders, for instance, earn 3% on the first $1,500 spent at gas stations the entire year without having to pay an annual fee. There’s also a $100 sign-up bonus once you spent $500 in the first three months.

Also consider Money’s Best Credit Card winner American Express Blue Cash Preferred. While this card comes with a $75 fee, you receive 3% back at gas stations in addition to a $150 sign-up bonus if you spend $1,000 in the first three months. Where it comes out ahead of the BankAmericard is if you’ll also use it at the supermarket, since the best feature of Blue Cash Preferred is the 6% cash back you get on the first $6,000 spent on groceries.

MONEY Travel

Summer Vacation 2014: 10 Ways to Get More Bang for Your Travel Bucks

Oheo Gulch and Seven Sacred Pools. Part of the Haleakala National Park, Hana, Maui, Hawaii.
Oheo Gulch and Seven Sacred Pools. Part of the Haleakala National Park, Hana, Maui, Hawaii. Carl Larson Photography—Getty Images

Tops on the summer travel hot list: which dream islands have suddenly become affordable, the airlines that offer the best value, and where a thirsty traveler can turn for cheap beer on a hot summer day.

Summer starts this weekend, and to mark the season’s kickoff we bring you 10 of the best ways to make your vacation dollar go farther.

Most Unexpected Bargain Spot for Budget Travelers
Normally, the sunburnt Greek islands flood with tourists in July and August, and with the crowds come soaring prices. Not so this year. The country’s “ongoing financial crisis has caused visitor numbers to decrease and, as a result, prices have dropped in an effort to woo back travelers,” explains Lonely Planet, which named Greece as its top European destination for backpackers in 2014. Earlier this year, the Backpacker Index estimated that a budget traveler could get by on $55 per day on the popular island of Santorini, making it cheaper than Athens ($62).

Dream Island That’s Suddenly a Steal
According to Priceline, the average nightly room rate in Maui this summer is $188, a 10% drop compared with the same period a year ago. Other data have indicated that Hawaii’s visitor numbers are down, and that tourist spending is on the decline as well, likely related to an economy that continues to be lackluster—or at least is perceived as such.

Most Cost-Effective Place to Vacation
No need to complicate things: It’s the beach. Expedia surveyed travelers around the globe about a number of vacation topics, including which kind of trip offered the most bang for the buck. Beach vacations got the top ranking, with 40% of those polled naming it as the most cost-effective option. Meanwhile, 12% said cruises , and 7% named theme park vacations.

Poland Warsaw Old Town beer advertisement person disguising beer mug
Old Town, Warsaw, Poland. Urs Flüeler—age fotostock

Where to Find the Cheapest Beer
GoEuro, a travel search site based overseas, ranked 40 world cities in terms of that all-important feature: beer affordability. Warsaw, Poland’s capital city, gets bragging rights for selling the least expensive beer of all, at £0.64 ($1.08) a pop. Berlin, Prague, Lisbon, Dublin, and Mexico City aren’t far behind, all featuring brews for under $1.35. Unfortunately, the per-beer prices are what tourists will encounter in a regular store, not at a bar, pub, or club, where prices are far more expensive. In Dublin, for instance, a pint of Guinness in a touristy pub will probably run about $10.

Most Affordable Business Class
The recent launch of JetBlue Mint, a premium service available on select coast-to-coast routes, brings spacious, fully-flat seats, high-end food and drink, and other business class amenities within reach of plenty of fliers. Fares between JFK and LAX or SFO start at $599 one way, and are readily available at around $1,600 round trip, compared with $2,500 and up for other airlines’ business class seating on the same routes.

Best Airline Seat Space for the Buck
The flight-planning site Hopper crunched the numbers and concluded that AirTran Airways, which is owned by Southwest, offers the best value per dollar of any airline in terms of what a passenger gets in the way of seat area and pitch. As for overall customer satisfaction per ticket price, that award goes to JetBlue.

Las Vegas Strip shot from the Trump Tower. Brian Jones—Las Vegas News Bureau

Least Expensive U.S. Destination City
The fact that the average daytime high in July is 106 degrees may have something to do with why Las Vegas was named the cheapest U.S. destination city of the summer by TripAdvisor. But hey, it’s always delightfully chilly in the air-conditioned casino of your choice. Researchers added up expected costs such as hotel, taxi, and dinner and cocktails for two, and estimated that a night in Sin City would run $276, about $230 cheaper than the most expensive U.S. city, San Francisco.

Best Home Base for Travelers
Travelers who live in the vicinity of Chicago and Washington, D.C., are in luck: They have the best flight departure options in the U.S., according to WalletHub, which factored in the cost, duration, and directness of routing on flights both within the U.S. and abroad. It’s no coincidence that travelers in both of these cities have more than one airport to choose from when booking flights.

Best Credit Card for Travelers
The answer as to which credit card provides the best perks and bonuses for travelers is heavily dependent on the cardholder’s spending habits and vacation desires. CardHub lists a dozen good options, broken down into categories for travelers who prefer rewards focused on hotels, flights, and more. In terms of all-around travel bonuses, among the top-named cards is the Barclays Arrival Plus, which gives 40,000 bonus miles—the equivalent of a $400 statement credit—after a new cardholder spends $3,000 during the first 90 days. NextAdvisor also says the Barclays card is tops in travel rewards. The card has an $89 annual fee, but it’s waived for the first year. Another feature to factor in when deciding on a credit card to use for travel purposes: Some cards are safer when going abroad.

Cheapest Flight to Europe Before It’s Too Late
Low-fare carrier Norwegian Air has been aggressively trying to expand service between Europe and the U.S. The airline, which has offered transatlantic round trips for under $500 (taxes included), recently brought its low-cost service to more U.S. cities, including Orlando. After a strong lobbying effort on the behalf of rival carriers and airline union workers, however, in early June the U.S. House of Representatives voted to block Norwegian’s expansion plans, reportedly due to concerns the airline wouldn’t be complying with labor laws. Since the Norwegian subsidiary that operates its transatlantic service is working with a temporary permit, the future of the airline’s international flights is up in the air.

MONEY Leisure

WATCH: George Takei Talks Marriage, Money, and the Right Way to Pronounce His Name

Actor George Takei tells Money's George Mannes how he handles his finances — and how he's fighting rising ticket prices on Broadway.

MONEY Careers

Work for the Man? That’s So Over, New College Grads Say

With banks dissing them and peers largely underemployed, Millennials are finding an alternative financial future.

Big companies still have many high-paying positions, and with the job market perking up those opportunities will expand. But young adults are still having trouble establishing basic financial security—or landing a decently paying entry-level job. Instead, they are forging different paths to financial success.

This search for alternatives starts with checking and saving. Banks haven’t figured out how to serve this new generation. Millennials have big debts from college, and instead of a single, steady full-time job, a recent grad may have four or five paying gigs. Banks can’t fit them into an existing box. But this new generation still needs credit and banking services.

Faced with this inflexibility, one third of Millennials seek to cut ties with traditional banks and financial companies, according to market researchers. Half say they are counting on start-up firms to overhaul how banks work, and 75% say they would prefer financial services from the likes of Google, Amazon, and PayPal. They are also turning to alternative financial firms like Square, Betterment, Robinhood, and Wealthfront to manage their payments and manage their money.

In their search for financial options, young adults are also finding new ways to launch their careers. Millennials have seen under-saved Boomers delay retirement, while corporations have shed workers and their peers are settling for jobs below their ability. As a solution, more twentysomethings are turning to entrepreneurship. Six in 10 recent college graduates are interested in starting a company, according to a new survey by CT Corp., a small business services firm. Those results mirror similar findings by other polls.

Entrepreneurial pursuits offer the potential to put individuals squarely in charge of their future. This is the mindset that the Thiel Foundation capitalizes on with its 20-under-20 fellowship, which seeks to develop entrepreneurs right out of high school and convince them they don’t need college or the student debt that comes with it.

The problem is that while many recent college graduates say they want to be their own boss, a large portion doesn’t really understand what that entails. So while 61% say they’d like to start a company, only 45% believe it’s feasible, CT found. Meanwhile, 67% display a knowledge gap around practical aspects like incorporating, registering a business name, securing a domain, and marketing their products or services.

Still, the entrepreneurial spirit runs deep in this crowd. One in five recent grads started a business while in college, and even among those who don’t believe they’ll ever start a company a third dream about doing so. More than half believe that being their own boss offers greater rewards and more financial security over the long run. Let’s hope they are right because in the new normal this is the path often taken.

TIME Saving & Spending

The Credit Card Bomb Just Waiting to Go Off

Last quarter, Americans collectively paid down $32.5 billion worth of credit card debt—but don’t pat yourself on the back just yet: That’s actually way less than we paid down at the end of the recession five years ago, and we’re on track to end this year with almost $42 billion more credit card debt than last year, which one credit expert warns could backfire big time.

CardHub.com‘s new quarterly credit card debt study shows a worrying return to pre-recession carelessness about debt, says Odysseas Papadimitriou, the site’s CEO. “Unfortunately, we’re a little bit worse than we were last year and significantly worse than we were in 2009 and 2010,” he says.

Americans historically pay off the most debt in the first quarter of each year, as we pay down our holiday spending and take advantage of early tax refunds to chip away at those debts — an average of $6,628 per household, according to CardHub. But in the years following the recession, we’ve been paying down less and less. This year, we paid down 28% less debt than we did in the first quarter of 2009.

In the period during and immediately after the recession, we were essentially scared straight and dumped our debt as fast as possible. We appear to have gotten over our fear, and that’s not necessarily a great thing, Papadimitriou says.

Right now, the default rate is around 3.3%, not bad by historical standards, but Papadimitriou points out that it’s coming off years of higher rates — during the last two quarters of 2009, it shot up above 10%. There’s less delinquent debt to go into default, following a period when credit card companies dumped those customers, charged off the losses and sold them to collection agencies for pennies on the dollar.

But that’s starting to change, as card issuers begin loosening credit restrictions and lending to people with blemished credit once again. We’re borrowing more as banks loosen the purse strings — CardHub predicts we’ll end this year with 8% more total credit card debt than last year, 14% more than just two years ago.

It’s not just credit card debt, either. Data earlier this year from the Federal Reserve Bank of New York found that overall consumer debt stands at a whopping $11.52 trillion, the highest it’s been since 2011, although it’s still below pre-recession figures. (Student loan debt — which can’t be discharged in bankruptcy the way credit card debt can — is a big culprit.)

This kind of trajectory puts us on a worrying cycle of accumulating more debt, year over year, which means any kind of financial hiccup — job loss, medical bills, illness — that hits makes us extremely vulnerable to falling behind on our debts. Papadimitriou urges Americans to build up an emergency fund so if the unexpected does happen, they won’t fall behind on their debts and be stuck paying penalty interest rates when they can least afford it.

“It seems like we need to get reminded on a constant basis of the risks of this behavior,” he says.

 

MONEY Savings

Millennials Are Saving, But Men Are Saving More. Here’s Why.

Among young adults, a savings gender gap is starting early. Are you ahead or behind?

You’ve probably heard that Millennials are doing better than previous generations in saving for retirement—those who landed jobs, anyway. But here’s something you may not have heard so much about: young men are saving significantly more than young women.

That’s the finding from a new Wells Fargo survey on Millennial savings habits, which found that overall 55% of young adults are saving for retirement. But that number disguises a wide gender gap. More than 60% of men are stashing money away, compared with just 50% of women.

“We were surprised to see the gap in this generation, when they have such similar profiles,” said Karen Wimbish, director of retail retirement at Wells Fargo. She points to the relatively few number of women in high-paying positions as a key reason for the disparity. For college-educated Millennial men, the median household income is $77,000, according to the survey; for women, it’s $63,000. (Those figures are similar to 2012 data from the Bureau of Labor Statistics, which found that women ages 20 to 24 earn just 89% the median earnings of their male counterparts.)

Given that difference in pay, it’s not that surprising that 26% of young men manage to save more than 10% of their incomes, compared with just 9% of women. The majority of women surveyed (53%) put away only 1% to 5% of their pay.

For both men and women, debt loads are making it more difficult to save. Some 40% of Millennials say they feel overwhelmed by debt. Nearly half say more than 50% of their pay is going toward debt repayment, and 56% “live from paycheck to paycheck,” the survey reported. The largest payments were owed to credit cards (16% of debt), followed by mortgages (15%), student loans (12%), auto loans (9%), and medical bills (5%).

Still, paying off debt, especially high-interest credit-card balances, can be a smart move, even if it delays saving, says Dan Weeks, a financial planner at Sound Stewardship in Overland Park, Kansas. But for many Millennials, those payments are likely to slow their ability to buy a house and start a family.

One bright spot: Millennials are becoming less risk averse—nearly one-third are invested in the stock market. Among college-educated young men, median financial assets, including stocks and bonds, were $58,500; for women, $31,400. And more than two-thirds of Millennial expect their life after retirement to be better than that of their parents. They could be right about that.

MONEY Kids and Money

Four Reasons You Shouldn’t Be Saving for College Just Yet

158313476
KidStock—Blend Images/Getty Images

You should make these moves before you start funneling away money for tuition, says financial planner Kevin McKinley.

As graduation ceremony season nears its peak, I’m seeing a steady drumbeat of stories warning of ever-rising tuition costs and education debt loads. It’s no wonder many parents of smaller children are panicked into thinking they have to drop everything and start saving all their money for their kids’ college expenses RIGHT NOW. Hang on just a second there, moms and dads. Although I’m certainly in favor of getting parents to save, there are four things I’d suggest you should do—and one you shouldn’t—before making “saving for college” the top priority. (Already completed all of these steps? Check out the MONEY 101 section on college for help getting started on your college savings journey.) DO save for retirement Since it’s possible to borrow money to pay for college but not to fund retirement, working parents have to put their own needs first. You should start by putting money in any pre-tax retirement savings plans at work (such as a 401k or 403b), at least up to any available matching contributions from employers. If no employer-sponsored plan is available, those with earned income should fully fund an IRA. You may be able to make a deposit for a stay-at-home spouse, as well. You can save up to $5,500 in 2014, or $6,500 if you’re 55 or older. The tax savings on the contributions to a pre-tax retirement plan will likely exceed what the deposits to a college savings account are likely to earn, especially in the first year. Then if you end up with a well-funded retirement, you can tap their overstuffed accounts once you hit 59 1/2—and have passed the penalty zone—to pay for college expenses as needed or pay off student debt incurred by your children. DO open a Roth IRA For eligible depositors, Roth IRAs can serve as a hybrid college/retirement savings account. These accounts—which allow for tax-free withdrawals—are typically thought of as a retirement savings vehicle. But if parents want or need the money before retirement for college (or other) costs, they can withdraw the Roth IRA contributions at any time for any reason with no taxes or penalties whatsoever. As an added bonus, money held in parents’ retirement accounts is less likely to be counted in a school’s need-based financial aid calculation than funds in the child’s name. DO pay off credit cards Double-digit interest rates charged on outstanding balances—the average APR is now around 16%—usually greatly exceed what you’d earn on your money elsewhere. So you’re better off erasing your debt before putting a lot of attention toward college. Plus, an improved credit score will make it easier for you to obtain higher education loans for your kids should the need arises in the future. DO prepare for the worst The majority of parents of younger children haven’t established wills, guardians, and other necessary legal steps—much less purchased enough life insurance to ensure that the tragic death of a parent will only be an emotional nightmare, and not a financial disaster as well. Moms and dads should see lawyer as soon as possible, and plan on spending a few hundred to a few thousand dollars, depending on the complexity of the situation. You should then purchase enough term life insurance to cover all future expenses—including college—that the survivors might endure. DON’T pre-pay the mortgage Well-meaning parents often try to pay down their housing debt as quickly as possible, thereby saving interest expenses and freeing up money that would otherwise go toward the monthly mortgage payment. But that step should only be considered if the parents are ahead of their retirement savings schedule, have no other debt outstanding, no future major expenses on the horizon, and have at least a year’s worth of living expenses saved up. Those parents who don’t meet these criteria should stop paying anything extra on their mortgage until they have fulfilled the other aforementioned financial obligations. Otherwise, parents could end up house-rich and cash-poor—just when it’s time to pay for their kids’ college expenses and their own retirement. _____________________________________________________ Kevin McKinley is a financial planner and owner of McKinley Money LLC, a registered investment advisor in Eau Claire, Wisconsin. He’s also the author of Make Your Kid a Millionaire. His column appears weekly.

MONEY credit cards

What MasterCard’s Zero Liability Pledge Means for Your Debit Card

MasterCard's new policy makes using your debit card a lot safer. Here's what you need to know.

June 4 (Reuters) – In the wake of a spate of data breaches highlighting the vulnerability of companies that hold consumer information, MasterCard Inc announced last week it would apply the same rules to PIN-based debit card transactions as those used for credit cards: zero liability when fraud is reported.

“Fraud and identity theft have been in the news a lot lately. We want to give cardholders peace of mind,” says MasterCard spokeswoman Beth Kitchener. The breach at Target last year, which affected more than 40 million customers, is still a top concern for many.

For consumers who have MasterCard-branded debit cards, the extension of zero liability means some things will change, while others won’t. Here is what you need to know about the new policy, which takes effect on Oct. 1.

Q: Does this mean that using a debit card is just as safe for transactions as using a credit card?

A: Not exactly. While those who have MasterCard-branded debit cards will benefit from the policy change, the inherent issues with debit cards remain. The main difference between debit card and credit card transactions is debit cards are tied to users’ bank accounts.

“With credit cards, it’s not a big deal. It’s their money not yours,” says Gerri Detweiler, director of consumer education for Credit.com. “With a debit card it is a big deal. Consumers still need to be very careful when a debit card is tied to their main financial account.”

Q: How much money could I be on the hook for right now if someone steals using my debit card?

A: Federal laws extend protection to consumers using both credit and debit cards, but losses for victims of fraudulent credit card transactions are capped at $50. Most credit card issuers, however, set the cap at zero. Responsibility for fraud on a debit card is tied to when it is discovered and reported.

If you report the loss within two days, federal law caps consumer responsibility at $50. If you report it within 60 days of receiving a statement that shows the fraudulent transactions, liability is capped at $500. If you don’t report it within 60 days, that liability is unlimited.

Q: Why isn’t a PIN enough to protect me?

A: Theoretically, using a PIN protects the cardholder because it’s a secure password. However, card skimmers can steal numbers, and some people use PINs that are easy to figure out.

Javelin Research & Strategy, which analyzes banking and fraud, found that about 10 percent of identity fraud victims had their debit card PIN taken. That works out to more than 1.2 million cards.

Q. How do I get money restored to my account if it is stolen?

A: You should contact your bank as soon as you learn your account has been compromised, says MasterCard’s Kitchener. Call the phone number on the back of your card or the financial institution that issued the card. How quickly the money is restored varies from bank to bank.

Q. What’s the biggest issue for consumers when someone commits fraud with their debit card?

A: Getting back the money in a timely fashion. Only about a quarter of the leading financial institutions offer to make money lost to fraud available in bank accounts the day after it is reported, according to Javelin. However, that one quarter includes some of the largest banks in the country: JP Morgan Chase and Bank of America.

Q. What are the exceptions to the zero liability rule?

A: There is one exclusion for exercising “reasonable care in safeguarding your card.” Consumer experts complain that this is not very specific. “Reasonable can have variable definitions depending on who you ask,” says John Ulzheimer, credit expert for CreditSesame.com.

Kitchener says it’s up to individual financial institutions to determine what would be considered a violation of the “reasonable care” rule. An example, says Detweiler, would be giving your card and password to someone to buy a gallon of milk and ended up spending $200. Or writing your PIN on the card.

Q. Is this policy change a good thing for consumers?

A: Credit experts say that it is. “Certainly the notion that certain transactions weren’t covered by zero liability was confusing to the consumer,” Detweiler says. “It’s great that they’re simplifying that for their customers and covering all transactions.”

Given that so many consumers use debit cards as a way to control spending – using their own cash rather than borrowing on a credit card – Ulzheimer says any effort to protect users is beneficial.

“By and large this is a good thing for consumers who choose debit over credit,” he says. “It lets them keep their budgetary controls in place while worrying less about fraud.” (Editing by Beth Pinsker and Sofina Mirza-Reid)

TIME

Wal-Mart Is About to Make a Major Change

Doug McMillon, President and CEO, Wal-Mart International, speaks at the shareholders meeting in Fayetteville, Ark., on June 7, 2013.
Doug McMillon, President and CEO, Wal-Mart International, speaks at the shareholders meeting in Fayetteville, Ark., on June 7, 2013. April L Brown—AP

Roughly six months after Target’s massive data breach became public, the big-box giant’s top rival has thrown down the gauntlet in the credit card security wars.

Sam’s Club parent Wal-Mart Stores Inc. announced that holders of the warehouse club’s co-branded MasterCards will receive new cards containing a security-enhancing chip beginning later this month when the company switches from Discover to MasterCard. Customers who have Wal-Mart co-branded credit cards will get their chip-containing cards when the switchover for them occurs later this year, MasterCard says.

“MasterCard has taken a strong stance on the need for the U.S. market to make the transition to chip-enabled credit cards,” MasterCard’s North America president Chris McWilton said in a statement.

“Sam’s Club is the first mass retailer to actively implement chip-enabled technology. Each credit card has an embedded chip that makes the card more difficult to duplicate, which provides enhanced security from fraudulent activity,” Wal-Mart said in a statement of its own.

Although banking tech security experts have known — and have been warning people — for years that our antiquated mag-stripe technology is seriously under-equipped to protect consumer data from today’s sophisticated cybercriminals, the situation only came to a head last year. The Target breach affected an estimated 40 million customers who had payment information compromised, and as many as 70 million more had personal information like email addresses, phone numbers names and home addresses exposed.

The event triggered a Department of Justice investigation and led to the ouster of Target president and CEO Gregg Steinhafel, who said last month he would step down following revelations that Target had brushed off early indications of the problem.

But despite the risks, retailers have been reluctant to undertake the major changes that switching to more secure payment methods would entail. Chip-based cards cost eight to 10 times as much as ordinary mag-stripe cards, says Brian Riley, a senior research director at CEB TowerGroup. Although the industry has set a cutoff of next year by when store card readers and the cards themselves to be converted, the initiative was off to a slow start so far. “What the industry has not seen yet is a major player going out and chaining their cards yet,” Riley says.

It’s likely that MasterCard is helping to shoulder the cost in this case, he says. “You can expect in a deal that brings MasterCard into Wal-Mart, certainly some concession on the MasterCard side for who’s going to be paying for this,” he says. Wal-Mart declined to disclose details of the cost.

 

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