US retailers and banks at odds over chips and pins

But worries abound that new credit card standards are still not widely followed

T he employee perched on a stepstool by the checkout at Trader Joe’s in Union Square in New York City is like an air traffic controller: Register 6 for one customer. Register 9 for the next.

quickly The routine helps move traffic

can often through the store, where the lines

grain snake around the aisles of whole

coffee. cereal, mixed nuts and Fair Trade

the Trader Joe’s, like many retailers around

terminals US, recently upgraded its payment

debit around the October 1 deadline to accept

chip. and credit cards with a new security

not be The timing, retailers say, could

slower, worse. The new terminals are often

the busy meaning that the long lines during

longer. year-end holiday season will grow

10/1, “If they couldn’t get it done before

appetite I doubt many are going to have the

end of the to turn it on between now and the

year,” said Mark Horwedel, chief executive of the Merchant

on behalf Advisory Group, which advocates of retailers. “This is make-it-or-break-it sales season for the merchant community.”

centre The new chip cards are also at the

two of a growing dispute that has pitted

— of America’s most prominent industries

other, banking and retailing — against each

even the and pulled in attorneys general and FBI in the process. But the debate involves more than whether

protected consumers will be adequately

with security during a season that has been rife

affect the breaches: The battle could

of dollars long-simmering war over the billions

credit and that merchants pay to process debit transactions.

David

“That is the crux of the matter,” said

The Nilson Report, Robertson, publisher of

“The real a payments industry publication.

savings savings is not about fraud, the real is about interchange.” Last year, merchants

fees, paid about $61 billion in interchange

$30 Robertson said, compared with about billion in fraud losses.

cards, The fight involves new payment

with issued over the last year, that come

can help a small square security chip that

secure. make in-person transactions more

spent billions Retailers complain that they have

terminals of dollars upgrading their payment

that cuts to accommodate a system

by banks, down only on the fraud shouldered

the standard not merchants. Chip and PIN, long

verify not in Europe, would help retailers

it. just the card, but the person using Writing to their colleagues in October,

warning two attorneys general sounded a

not go far bell: The new security chip would

Credit enough to make transactions safer. cards needed a PIN, too. “If we continue to settle for weaker

to standards here, we will continue pay the price,” wrote Sam Olens, the Republican Georgia attorney-general, and George Jepsen, his Democratic counterpart in Connecticut. They urged top prosecutors in other states to sign a separate letter to Visa,

of America MasterCard, JPMorgan Chase, Bank

them to and other institutions, pushing adopt the chip-and-PIN technology.

their Banking groups were swift to issue

had own statement, saying that merchants

In been “spreading an outdated narrative”.

confirmed November, a spokesman for Olens

letter. that he had taken his name off the

general Jepsen and eight other attorneys

version sent the financial institutions a revised

the adoption of the letter. While they urged

possible,” of chip and PIN “as soon as

they were the prosecutors made it clear that

to make seeking neither a deadline nor a law

sensitive such adoption mandatory. “We are

law any to the concern that locking into the

may pose particular card security technology

rise to risks to future innovation and/or give

in different incompatible technical requirements jurisdictions,” they wrote.

Shifting focus

are Banks insist the chips and a signature

seeking enough, and argue that retailers are

threat to to deflect attention from the real

security consumers: weaknesses in retailers’

to steal systems that have allowed hackers

And credit card data in a series of breaches.

only they point out that by some estimates,

will be about half of retailers, or even fewer,

by the end able to process chip-enabled cards of the year.

retailers “We think the focus should be for

use the to turn on their chip readers and

said technology that’s available to them,” James Chessen, the executive vice-president

Bankers and chief economist at the American Association, an industry trade group. Banks, too, are lagging. By some estimates,

were only 19 per cent of cards in circulation

were to chip-enabled by October 1. Retailers

to accept upgrade their payment terminals

liable for chip cards by that date, or become

be issuing fraud. Most of the big banks will still new cards into next year.

billions While large retailers have spent

small of dollars upgrading their equipment,

cards are businesses also say that the new

enough overly burdensome without adding

sits on the protections. Jared Scheeler, who

of Convenience board of the National Association

the House Stores, testified in front of

He said: Small Business Committee in October.

companies “It does not appear that the card

of operating took into consideration the realities

came up a small business when they with their transition plans.”

average Scheeler testified that it cost the

its petrol convenience store $26,000 to upgrade

average pumps and point-of-sale terminals;

is about annual profit at convenience stores

swipe $47,000. But because of “exorbitant”

said, merchants fees and other liabilities, Scheeler

than 100 will end up bearing “far more per cent of the cost of fraud.”

fought For years, retailers and banks have

for every over the fees that merchants pay

handed credit or debit transaction. US Congress

the Federal retailers a victory by ordering Reserve to cap the fees on debit transactions

reform act as part of the Dodd-Frank financial of 2010.

0.05 The Fed set the cap at 22 cents, plus

cap exists per cent of the purchase value. No

are typically for credit card transactions, which more expensive.

was But retailers thought that 22 cents

the Fed to too high, and unsuccessfully took

Durbin court. In a court filing, Senator Richard

to “heavy said the agency had succumbed

(Durbin lobbying by the banking industry”.

to the championed the original amendment

Fed to review Dodd-Frank act that instructed the debit cards.)

the Banks say interchange fees help cover

fees should cost of fraud. Retailers argue that therefore decrease if fraud is reduced. Mallory Duncan, the senior vice-president

said of the National Retail Federation,

the driving reducing interchange fees was not

debate. issue behind the chip-and-PIN

a question “I don’t think it’s leverage, it’s

have of whether or not the card companies

goes into been telling the truth about what

said. making the interchange fees,” Duncan Security experts agree that a chip-andPIN

chip-and-signature system is more secure than

A security for in-person transactions.

verify the chip without a PIN helps

user. legitimacy of the card, but not the That helps cut down on the effectiveness

fraud or of counterfeit cards, but not online

or stolen. in situations where a card is lost But Stephanie Ericksen, the vice-president

out that of risk products for Visa, points

committed merchants are not held liable for fraud

processed with lost or stolen cards

largest. on the network, one of the world’s

policy, retailers (Duncan argues that, despite the

a third of end up paying for nearly such fraud anyway.)

merchants “We certainly support issuers and

PIN,” she if they want to move to to said, but Visa did not offer an incentive Visa was do so. Instead, Ericksen said that solutions, investing in more “dynamic” security encryption such as more advanced data methods and biometric authentication. warning In early October, the FBI issued a were still that chip-and-signature cards vulnerable to fraud. The original announcement that seemed to incorrectly indicate banks were issuing chip-and-PIN-enabled to use the credit cards, and urged consumers possible. PIN instead of a signature whenever the new The bureau also warned that stolen cards “can be counterfeited using market.” card data obtained from the black The American Bankers Association some quickly called the bureau to clarify and the “misinformation”, Chessen said, The new bureau revised its statement. can be warning does not say that the cards counterfeited. Jillian In an email, an FBI spokeswoman, the Stickels, said the bureau changed advisory to “clarify the security safeguards and to associated with EMV technology highlight some of the potential vulnerabilities may try fraudsters and cybercriminals to exploit.” of “Given the clear consumer benefits to chip and PIN, why are banks hesitating a formerattorney require both?” Martha Coakley, said in general of Massachusetts, that was an opinion article she co-wrote is that, published in September. “The truth status quo for banks and card networks, the is lucrative; they don’t want to change.”