Payment card security revamp becoming chip vs. PIN tussle

National Retail Federation says quickest way to boost security is to require PINs for all credit-card transactions

Industry efforts to shore up payment card security after the massive data breach at Target appear to be devolving into a battle over chip vs. PIN technology between retailers and credit card companies.

MasterCard and Visa want all U.S. retailers to install payment terminals capable of accepting Europay MasterCard Visa (EMV) smartcards by October 2015 or face increased breach liability exposure.

EMV chip cards are used widely around the world and are considered much safer than magnetic stripe cards, especially when used in conjunction with a Personal Identification Number (PIN).

However, retailers, which have to bear the bulk of the migration costs to EMV, say it's possible to improve U.S. payment card security quickly by simply implementing a mandatory PIN requirement for all credit and debit card transactions.

Just as PINs are required to withdraw money from ATMs, PINs should be required for all payment card transactions, they say.

"Protecting all cards with a PIN instead of a signature is the single most important fraud protection step that could be taken quickly," the National Retail Federation said in a statement Wednesday before the Senate Committee on Commerce, Science and Transportation.

"It's proven, it's effective, and it's relatively easily implementable," the statement said pointing to the ubiquity of PIN debit card use worldwide. "Chip is a desirable add-on. If speed of implementation is of importance, then substituting PIN for signature is preferable to implementing chip."

The NRF noted that one of the biggest problems with payment card security in the U.S. is that card companies only require a signature for a credit card transaction. PINs have proved to be a far better method for authenticating the identity of a user and are better for reducing fraud than signatures.

"PIN transactions have one-sixth the amount of fraud losses that signature transactions have," the NRF told the Senate committee. Yet, card companies have refused to make it a requirement because they can collect more fees with signature-based transactions, the NRF claimed.

EMV chip cards would be a step in the right direction, the trade group conceded, but only if the cards are used along with a PIN.

In the U.S., neither Visa nor MasterCard insists on a PIN authentication requirement for smartcards. Instead, cardholders will be able to authenticate their identities with a signature, as they currently do with magnetic stripe cards.

Visa has noted that adding a PIN requirement will add substantially to the cost of the EMV migration and the time needed to get it done. The has said that chip cards, even without a PIN, are substantially safer than magnetic stripe cards.

The NRF and other retail groups maintain that using a chip card without a PIN detracts from the fraud-prevention benefits of chip technology. Merchants would spend billions of dollars to install EMV-compliant card readers but neither merchants nor consumers would fully benefit from the technology.

"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.

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