Payment card security revamp in the U.S. becoming chip vs. PIN tussle

Jaikumar Vijayan

"We would essentially be spending billions to combine a 1990s technology (chips) with a 1960s relic (signature) in the face of 21st century threats," the trade body said.

An NRF spokesman on Wednesday insisted the trade group, which represents tens of thousands of merchants worldwide, is not saying there's no place for smartcards. "We are simply saying that PIN is most desirable. The card companies have insisted that PIN adoption would slow down the transition. If that is the case then simply go to PIN instead of in addition to chip," he said.

Other technology approaches like end-to-end encryption and tokenization also offer substantial fraud-prevention potential at a lower cost and with less risk of being locked into a proprietary approach like EMV, the NRF told the Senate Committee on Wednesday.

The debate over PIN versus signature authentication has a lot to do with money, said Avivah Litan, an analyst at Gartner.

"It's all about the banks wanting to maximize revenue," Litan said. "When a PIN is entered, they earn lower fees from the merchants. It's absolutely nonsensical that the banks would advocate for a less secure approach. It's all because they want to maximize the amount of money they make off the merchants."

This is not the first time that U.S. merchants and credit card companies have been at loggerheads over payment card security.

Groups like the NRF maintain that merchants are required to bear an unfair share of the costs of shoring up credit and debit card security and the cost of fraud that results from data breaches like that one at Target a few months ago. By some estimates, merchants end up paying 90% of the cost of unauthorized transactions compared to 10% by financial institutions, the NRF said pointing to a 2009 analyst report.

Despite this, retailers have little voice in how credit and debit card data and transactions need to be protected and are instead at the "mercy of the dominant credit card companies," the trade group said.

Visa and MasterCard did not immediately respond to a request for comment.

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