The U.S. government on Friday said it plans to include increased security protections for credit and debit cards issued to distribute federal benefits such as Social Security and given to federal employees to cover work expenses.
President Barack Obama made the announcement at the Consumer Financial Protection Bureau. The government's move, designed to encourage tighter security over Americans' financial data after several high-profile data breaches, comes as the private sector is shifting to cards containing a security chip that is supposed to make credit and debit cards less susceptible to fraud.
Nearly half of U.S. merchants will be able to process chip-card transactions by the end of next year, a payment industry task force said Friday. The task force also recently estimated that 575 million cards, representing roughly half of the plastic in circulation in the U.S., will be in circulation by the end of 2015.
The White House said the government would start distributing federal benefits with debit cards containing the chip, including Social Security, Medicare and veterans' payments, along with cards issued to cover federal work.
"Identity theft is now America's fastest-growing crime," Mr. Obama said. "You should be able to buy the things that you need without risking your identity, your credit score or your savings."
The chip-based cards won't prevent data breaches but will make it more difficult for thieves to create counterfeit cards from stolen data. The chips work only if merchants upgrade their terminals at the cash register to accept the new cards, which will still also contain the traditional magnetic strip on the back.
The Treasury Department currently uses debit cards for federal benefit payments to about 5.5 million people. For federal workers, the government has issued around 3.2 million cards, which are typically used for purchasing supplies and travel-related expenses.
The Obama administration also endorsed a move toward the use of Personal Identification Numbers, such as those used on ATM cards, for credit-card transactions--a move many in the financial industry oppose. Starting next year, new and replacement cards issued on behalf of the federal government will allow for the use of PINs, but will continue to work at retailers that do not mandate their use.
Chip cards have been used widely in Europe, Asia and Canada for years but they have been slow to take hold in the U.S. Recent security breaches have renewed interest in rolling them out.