Pop Quiz: Consumer Ripoffs

Hi Brian,

My family and I are big fans and long time listeners show and I really enjoyed your pop quiz in episode 654 on 18th December. Your question about card payments caught my attention because I am quite a boring person and this is one of the few things that I know anything about. You asked "Which of these three is the riskiest way to use your card?” and gave the three options

1. Using your card via a phone app such as Apple Pay or Android Pay.

2. Swiping the magnetic strip.

3. Using a chip card.

You correctly give the answer B, swiping the magnetic strip, but your explanation is incorrect.

Whether you use a strip or a chip, they both pass your card number to the merchant terminal and from there it ends up in the merchant system although it should be encrypted for safety.

Chip cards do not have an encrypted connection to the bank and they do not use tokens. The reason for using chip cards is that they cannot be counterfeited: even if I steal your card number, date of birth, social security number and inside leg measurement, I cannot create a clone of your chip card because the chips contain a security key that is never disclosed (it is used to create digital signatures for transactions). In case you are at all interested, here’s a blog post I wrote about this a couple of year ago (referencing another blog post I wrote about it a decade ago - I have been boring people about this for a long time).

The “xPay” apps do indeed use a token instead of the card number but it is not a one-time token: when you set up your Apple Pay wallet, the bank sends you a token that is a permanent alias to your real card.

Keep up the good work!

All the best,
Dave.