Visa and MasterCard Make Second Push for Chip and PIN

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In the wake of high profile data breaches, Visa and MasterCard are making another push for the payments industry to adopt chip and PIN technology in U.S. credit and debit cards, according to the Associated Press.

This push also came after last week’s revelation that hackers stole consumer data from eBay computers. 

The argument among card processing companies is that a move away from the black magnetic strips on the backs of the credit cards would eliminate a substantial amount of U.S. credit card fraud.

The card processing companies are saying it’s time to offer U.S. consumers the greater protections microchips provide by joining Canada, Mexico and most of Western Europe in using cards with more advanced technology.

Carolyn Balfany, MasterCard’s group head for U.S. product delivery, told the Associated Press that the chips aren’t perfect, but the extra barrier it presents is one of the reasons criminals often choose to target U.S.-issued cards,  whose magnetic strips are easy to replicate.

The U.S. has not adopted the chip and PIN technology because of costs and disputes over how the network would operate. Retailers have refrained from paying for new POS systems and back office systems to handle the new cards.

There have been disputes among retailers, card issuers and processors  over which processing networks will get access to the new system and whether to stick with the signature based system or move to one that requires a personal identification number instead.   These disputes have been resolved.

The decisions would impact how much retailers and customers have to pay and how much credit card issuers make each time the card is used.

In December,  Target fell victim to a breach that affected 40 million debit and credit card numbers.  Other breaches followed for retailers Neiman Marcus and Michaels.  These breaches  helped garner support for chip-based cards among retailers who were previously restrained because of costs.

Supporters say that unlike magnetic stripe cards that transfer credit card number when they are swiped at a point-of-sale terminal, chip enabled cards are safer.  They use a one-time code that moves between the chip and the retailer’s register.  The transfer of data is useless to anyone except the parties involved.   Chip cards are also impossible to copy.

Target has a robust $100 million plan to roll out a chip-based credit card technology in its nearly 1,800 stores.  The retailer will have new payment terminals expected to appear in September.  The retailer also announced it will team up with MasterCard to issue branded Target payment cards with a chip technology early in 2015.  Target will be the first major retailer to issue its own branded chip-based cards.

Opponents of the chips say that it doesn’t prevent fraud in online transactions, where consumers often enter credit card numbers into online forms. Opponents also point to other technologies such as point-to-point encryption, as better long-term solutions.

While banks will recover any credit card-related losses,  companies like Visa and MasterCard could lose too if data breaches continue.  If consumers fear using cards, they may choose other forms of payment.

In March,  Visa and MasterCard announced plans to bring together banks, credit unions, retailers,  makers of card processing equipment and industry trade groups with a mission to strengthen the U.S.  payment system for credit and debit cards. The initial focus of the group will be on the banks’ adoption of chip cards.

This group comes ahead of a liability shift which is set to occur in October 2015, when the costs resulting from the theft of debit and credit card numbers will fall upon the parties involved with the least advanced – and most vulnerable technology.

Banks argue that fraud still accounts for a small fraction of total transactions processed, while the cost related to chip cards to all of their customers and switching out all of their ATMs is substantial. Banks are urging lawmakers to hold retailers accountable for their own security.