Key takeaway: Card issuers, state benefit agencies, and merchants that still accept magstripe transactions should treat this as a concrete argument for accelerating chip and tap-to-pay migration on government benefit cards. The reporting suggests fraud volume is scaling precisely because that upgrade hasn’t happened broadly across states.
Organized crime groups from Romania are exploiting decades-old magnetic-stripe technology to steal hundreds of millions of dollars from the U.S. welfare system. That’s according to a Wall Street Journal investigation, reported by PYMNTS on September 20.
Investigators told WSJ the operation relies on “builders.” These are criminals who construct skimming devices that merchants easily miss. The devices capture card data from benefit recipients swiping government-issued debit cards at stores. Beyond skimming, criminals reportedly use bots to guess welfare recipients’ account numbers. In other cases, they run phony transactions against food-stamp accounts through cloned credit card machines, funneling the proceeds into their own bank accounts. Stolen funds go toward luxury purchases, and are converted to cryptocurrency to move money back to Romania.
Magnetic-stripe technology, invented in the 1960s, is central to why this works. Most electronic benefit transfer (EBT) cards, used primarily by low-income Americans, still rely on magstripe rather than chip or tap-to-pay. Few states have upgraded their systems. “The insanity of letting people continue to use a glorified hotel-room key is akin to donating money to the Romanians,” said Haywood Talcove, CEO of LexisNexis Risk Solutions’ government business. Michael Peck, head of the Secret Service’s Global Investigative Operations Center, put it more bluntly: “Sadly, business is booming.”
Why it matters: This is a live example of fraud concentrating wherever payment technology lags behind, not just wherever fraud controls are weakest. EBT programs sit at the intersection of vulnerable cardholders and outdated card technology. That makes them a persistently attractive target as long as the magstripe gap remains open. The tactics described here (skimming, account-number bots, cloned terminals) show how one technology weakness gets exploited through several attack methods at once.
Source: PYMNTS