Is your PIN ugly?

In the US, giant ‘big box’ retailers are set to sue the card payment companies for billions over an issue which at first sight appears to be about consumer choice and security, but which is in fact more about the unscrupulous pursuit of profit.


Despite the fact that PINs are more secure than signatures, card companies insist that consumers be allowed to continue with their low-tech bad habit of ‘swiping and signing’ when making purchases. This, they argue, gives the consumer choice. But it also exposes them to unnecessary cyber-fraud as the ‘magstripe’ technology used when swiping is hopelessly outdated.


On the surface, then, the debate is about how to balance security and convenience when using the new generation of EMV chip-enabled cards. But it isn’t. Scratch the surface, and the simple truth is somewhat uglier:


Banks and payment providers collect higher merchant fees for signature-based card transactions than PIN-based ones. This is because retailers have to pay card companies about five cents more for a ‘swipe & sign’ transaction than they do for those that use a PIN despite the insecurity of signatures. Not only that, but the card companies also maintain control of the transaction with the signature method but lose that control when retailers have the ability to route PIN transactions through a cheaper network belonging to somebody else … which they can when transacting using ‘chip & pin’.


Various lawsuits filed in May and June 2016 by the likes of Home Depot and Wal-Mart against payments providers such as Visa and MasterCard claim that, “while ‘chip & pin’ authentication is proven to be more secure, it is less profitable for the card companies and their member banks, and it provides a greater threat to their market dominance.”


Looks like battle lines are being drawn. It could get ugly.


[Author: James Shepherd-Barron]

[Photo: Abel Uribe, Zuma Press ]

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