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The elephant in the room this holiday season

For deal-seeking consumers, there is a giant elephant in the room this holiday-shopping season that could and should be addressed by the financial sector but continues to be ignored: the lack of secure credit-card transactions.

Elephant in room
Matthias Clamer | Getty Images

Shoppers predominately purchase gifts with credit cards — estimated at two-thirds of all in-person sales — and they are doing so using magnetic-stripe and signature technology that was in use in the 1970s. It's an old technology that is becoming a big problem for merchants and consumers.

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In the last decade, most of the world has given up on the old technology. Canada and much of Europe now use chip and PIN (Personal Identification Number) technology for credit-card transactions. Under a two-step verification system, consumers must enter a PIN, rather than sign for purchases, just as is required of Americans when swiping a debit card or taking money out of an ATM. The chip and PIN together ensures that each transaction is uniquely coded and puts in place a near guarantee that the purchase is authentic (the exception would be someone knowing the PIN).

In the U.S. though, the vast majority of Americans not only lack a chip-equipped cards to replace the ones with outdated magnetic stripes, but the financial institutions in control have signaled they have little intent in implementing the dual chip and PIN technology. BGR reporter Zach Epstein recently wrote that, in today's digital age, the only reason we use this outdated technology in the United States "is because we have to; [because] the government is behind the times and banks are behind the times."

But what Epstein fails to note is that Wall Street's intransigence is the culprit holding consumers back from having more secure payment methods. They've been unwilling to adopt better data-security measures because they cost more than the ineffective magnetic stripe cards they are peddling now.

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Moreover, Visa and MasterCard earn higher transactions fees off of the old signature system, which makes them reluctant to spend the resources necessary adopt better measures like requiring a PIN along with chip-enabled cards. Given that Federal Reserve says that the use of PINs instead of signatures make transactions exponentially more secure, this is not only unfortunate, but unfair to consumers and merchants.

Signatures on the back of cards and magnetic stripes simply do not provide a serious layer of security for cardholders. Relying on outdated technology shows a lack of regard for consumers, illuminating that it is more about making money through the swipe fees than providing safe transactions.

The success of chip and PIN should motivate Americans to demand progress. The combination of this new technology and the abandonment of 1970s-era magnetic stripes could dramatically increase security, reduce fraud, and improve consumer confidence.

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While the holiday shopping may not be what George Washington envisioned, it certainly should not be something Americans need to feel uneasy about. Enough is enough; it is time to kick the elephant out of the room this holiday season.

5. Cultural change

Commentary by Steve Pociask, president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. Follow him on Twitter @consumerpal.