All sorts of useful technologies have been proposed for making transactions--particularly electronic ones--much safer than they are now. But so far, none of them have taken off, and I think I just learned why. The clue was an article in the National Review by one Frances B. Smith, of an outfit called "Consumer Alert"--apparently a free-market-oriented group intending to act as a counterweight to more traditional "consumer protection" groups.

Smith's rather confusing article concerns the recent settlement of a 1996 class-action antitrust suit brought by retailers against the big credit card systems, Visa and Master Card. The retailers' complaint was that the credit card giants were forcing them to accept debit cards (or "check cards") based only on the customer's signature, instead of requiring a PIN entry on each transaction. Smith's spectacularly unconvincing argument is that this requirement has improved consumer choice, since customers can choose whether to enter a PIN or not, without fear that a retailer would demand one.

To understand the other side of the argument, though, one needs to hear from the retailers. And their case is simple: the credit card systems charge very small fees--10 to 15 cents--for check card transactions involving a PIN, and credit card-style fees--1.5 to 2 percent of the transaction--for signature-only transactions. Obviously, then, at least some businesses would prefer to steer their customers towards PIN-entry transactions.

Why are the two fees so different? One word: security. It's much, much harder to steal someone's check card and their PIN than to steal (or forge) a card and fake the signature. Signature-only check card transactions thus have much higher fraud rates, and the banks that make up the credit card consortia have to charge higher fees to make up for their fraud losses.

And it would appear that that's why they're against secure transactions. They're basically in the insurance business, charging merchants exorbitant premiums in return for protecting the merchants' retail revenues against rampant fraud. If fraud goes away, though, the insurance part of their business also goes away, and they become a glorified electronic bookkeeping company--with appropriately reduced margins and revenues.

I suppose we should count ourselves as lucky--after all, imagine if car manufacturers made more money selling high-risk automobile insurance than selling cars....