Will Chip-and-Signature Protect Consumers?

Apr 23, 2015

Walmart’s senior vice president and assistant treasurer, Mike Cook, called the rollout of chip-and-signature cards “worthless”. Cook believes that the U.S. should have backed a chip-and-PIN system that would almost guarantee the elimination of consumer credit card fraud. At the Electronic Transaction Association’s Transact conference in San Francisco, the executive blasted the U.S. treasury and financial institutions for not going far enough to protect consumers in a time where large scale data breaches are almost common place. Cook pointed to the clear superiority of a chip-and-PIN system over a chip-and-signature. In the case of the Home Depot and Target breaches, he noted that criminals couldn’t use the cards if they didn’t have the PIN.

Cook isn’t alone in his support of PIN technology. AFPs manager of treasury, Magnus Carlsson, states that chip-and-PIN tech would cause retailers to experience lower sales because of supposed negative customer experiences. However, many retailers support PIN authentication because of its ability to drastically reduce fraud. But card issuers claim that the extra security that comes with PIN authentication, is simply not worth the cost of upgrades that would have to occur nationwide. Plus companies like Visa question investing in chip-and-PIN when technology, like Apple Pay, are clearly the next step in the payment processing evolution. They argue that card issuers should focus on integrating these sorts of technologies with card issuers and retailers.

Liz Garner, vice president of the Merchant Advisory Group (MAG), agrees with Cook. She believes that authentication would be more secure if consumers had to enter a secret password/PIN, instead of signatures since they are easy to counterfeit. She believes merchants need another layer of security when performing high risk transactions. When cards are issued without a password or PIN requirement, it takes away the merchant’s ability to have this second layer of protection.

According to Garner, since merchants are responsible for more than half of fraud losses and over 70 percent of card-not-present losses, card issuers are not motivated to fund the second layer of authentication. Though she admits that some merchants might not want the second layer on low dollar transactions. According to a 2015 AFP Payments Fraud and Control Survey, 61 percent of respondents think that chip-and-PIN would be more effective than chip-and-signature.

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