Dynamics Inc. of Harmar gets involved in averting credit card fraud

Whether it's with swipe and a signature or a few keystrokes and a click, 70 percent of Americans use credit cards, according to Gallup, and somewhere, hackers are busy devising ways to pluck sensitive data on those cards.

Nearly half of all credit card fraud happens in the United States, and fraud losses worldwide top $11 billion, according to The Nilson Report, a payment industry newsletter.

Before you cut your card in half and stuff shoeboxes with cash, a Pittsburgh-area company thinks it has an answer to credit card fraud, namely by turning your card into a mini-computer that can erase and rewrite itself in response to purchases.

Dynamics Inc., based in Harmar, announced a new credit card on Wednesday that combines a personal identification number, unique security codes and a digital display to thwart thieves that would take the card's number and use it on a shopping spree. The company said in December investors pledged $70 million to support the technology.

Experts say Dynamics might succeed if consumers choose to embrace a more complicated credit card transaction.

“It's adding a lot of bells and whistles and friction to the payment transaction,” said Julie Conroy, a fraud and banking analyst and Aite Group in Boston.

Cards will come without the complete account number imprinted on them or embedded in the magnetic stripe, said Dynamics CEO Jeffrey Mullen, a Carnegie Mellon University graduate.

The cardholder will have to enter a code on the card, which will run a program that displays the number on the card and writes it to the magnetic stripe. As soon as the card turns off, it erases the number until it is turned on again.

“All you need to hack a card is a 3-year-old with a crayon,” said Mullen, referring to the embossed account numbers on most cards.

The magnetic stripe on the back of a credit card contains two tracks, said Mullen. On most cards, the two tracks have the account number written into them, but the second track has more information that helps route the sale when it is swiped through a credit card reader. Thieves can get the account information by hacking into merchant databases or by running cards at the point of sale through a card reader that collects the information on the card. The thief can use the numbers to make online purchases, or to make fake credit cards for in-store purchases.

“Payment card data is something that hackers are very much interested in,” said Christina Tetreault, a finance attorney at Consumer's Union. “Anything that makes it more secure is likely to be of benefit to consumers.”

Many countries require credit card companies to equip cards with chips. EMV chips (Europay, Mastercard and Visa) are meant to combat fraud through the use of PINs or by transmitting one-time authorization codes to the verifying system that confirms a purchase, Tetreault said.

Dynamics cards will add similar technology to the magnetic stripe, Mullen said. Cards will contain a random code on the magnetic stripe to authenticate purchases. It will generate a random three-digit card verification code that will appear to the cardholder for each purchase.

“We need a product which can be used everywhere,” said Mullen. “The U.S. has a very well developed but fragmented payment ecosystem, so how can we increase the functionality of payment products without changing the infrastructure?”

Pete Kaulbach, Mastercard's vice president of product development, said the company's decision to invest in Dynamics was based on the company's ability to use existing card-reading devices. It might be a year or so before consumers have the cards.

Other products created by Dynamics allow users to switch the currency of payment by touching a button on the card or to switch between credit and debit. A joint Tim Horton's/CIBC card can be used as a prepaid card for doughnuts, coffee and sandwiches at the popular Canadian chain.

Megha Satyanarayana is a staff writer at Trib Total Media. She can be reached at 412-320-7991 or megha@tribweb.com.