Chips pit retailers against big banks
Many U.S. retailers recently upgraded their payment terminals around an Oct. 1 deadline to accept debit and credit cards with a new security chip.
The timing, retailers say, could not be worse.
The new terminals are often slower, meaning that the long lines during the busy year-end holiday season will grow.
“If they couldn’t get it done before 10/1, I doubt many are going to have the appetite to turn it on between now and the end of the year,” said Mark Horwedel, CEO of the Merchant Advisory Group.
The new chip cards are also at the center of a growing dispute that has pitted two of America’s most prominent industries — banking and retailing — against each other.
But the debate involves more than whether consumers will be adequately protected during a season that has been rife with security breaches. The battle could affect the war over the billions that merchants pay to process credit and debit transactions.
“The real savings is not about fraud. The real savings is about interchange,” said David Robertson, publisher of the Nilson Report, a payments industry publication. Last year, merchants paid $61 billion in interchange fees, Robertson said, compared with $30 billion in fraud losses.
The fight involves new payment cards, issued over the last year, that come with a small square security chip that can help make in-person transactions more secure. Retailers complain that they have spent billions upgrading their payment terminals to accommodate a system that cuts down only on the fraud shouldered by banks, not merchants. Chip and PIN, long the standard in Europe, would help retailers verify not just the card, but the person using it.
Writing to their colleagues in October, two state attorneys general sounded a warning: The new security chip would not go far enough to make transactions safer. Credit cards needed a PIN, too.
“If we continue to settle for weaker standards here, we will continue to 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, MasterCard, JPMorgan Chase, Bank of America and other institutions, pushing them to adopt the chip-and-PIN technology.
Banking groups were swift to issue a statement saying that merchants had been “spreading an outdated narrative.”
On Monday, Jepsen and eight other attorneys general sent the institutions a revised letter. While they urged the adoption of chip and PIN “as soon as possible,” the prosecutors made it clear that they were seeking neither a deadline nor a law to make such adoption mandatory.
Banks insist chips and a signature are enough, and argue retailers are seeking to deflect attention from the real threat to consumers: weaknesses in retailers’ security that have allowed hackers to steal credit card data. And they say that by some estimates, only half of retailers will be able to process chip cards by year’s end.