A credit card skimming machine copies information from a credit card by reading the magnetic strip. The data thieves then use this information to make up fake credit cards that they use in person or for online transactions. This kind of credit card fraud often goes undetected for quite some time, making it very difficult to track it back to the original thief. In a research study published in 2005, TowerGroup, which serves the financial sector, estimated that financial institutions lose approximately $1 billion each year due to skimming, just in the United States. Most credit card skimming appears to be the work of organized crime, though there are individual thieves as well.
Credit Card Skimming Machine Locations
Credit card skimming is most common in restaurants, bars, or other locations where you physically give control of your card to somebody who can then disappear. This lets the data thief run the card through their credit card skimming machine in relative privacy. The latest versions of credit card skimming machines are about the size of a small cell phone so it's quite easy to hide one in a back room or even in a pocket.
More recently, some thieves have put miniature credit card skimming machines in ATMs. The transaction appears to go through without any interruption (unlike the devices that physically capture and do not return cards). In some cases, the data thieves have even installed miniature cameras on the ATM in order to record PIN numbers. The cardholder has no reason to suspect that anything has gone wrong until the first fraudulent transactions appear.
Credit Card Skimming Machine Fraud
Just like there are two major ways of using credit card skimming machines to steal your data, there are two major ways of protecting yourself. First, don't let your card out of your physical control or make sure to watch when somebody else has control of it. Second, use only ATMs in protected areas, such as inside a bank or store, where people would have to present authorization to make changes to the machine. Standalone machines open to the street are the highest risks. Make sure you cover your hand when you enter your PIN number. You can use your other hand, a hat or scarf, a newspaper, or anything else handy. Of course, these cautionary steps won't guarantee your card's safety, but they will definitely increase the odds in your favor.
Credit cardholders are liable only for the first $50 of fraudulent activity and many credit card companies even waive that. Some of the thieves who use credit card skimming machines, however, make only small charges every now and again, hoping that the card owner might not even notice. For this reason, when you get your credit card statement, read it line by line, including transactions at familiar stores, especially if they are national chains. If you have a credit card from a particular retailer, a thief might well count on you not noticing an additional charge or two on your Target Visa, Sears Credit Card, Home Depot Credit Card, or other specialized card.
Smart Cards as Fraud Prevention Tools
Many companies, especially in Asia and Europe where credit card skimming machines first became common, are introducing "smart card" technology. These smart cards use small computer chips instead of magnetic strips to record data and the chips have built-in security devices such as encryption, a system that requires the chip to be read during the transactions, or even fingerprint identification.