The Retail Industry Leaders Association (RILA) issued the following statement in response to action announced today by President Obama aimed at addressing known weaknesses in debit and credit card security. As part of an executive order unveiled today, the President sets a new policy that requires newly issued and existing government credit and debit cards be enabled with chip and personal identification number (PIN) technology.
RILA President Sandy Kennedy will be in attendance at signing of the executive order.
"Retailers applaud the President's action to advance card security. Today's announcement should serve as a catalyst for widespread adoption of chip and PIN card security. Every American cardholder deserves the highest level of security available today. The antiquated card security system in place today in the U.S. makes it far too easy for criminals to commit card fraud. Retailers are dedicated to protecting consumers and believe that Chip and PIN technology will better shield U.S. consumers from fraud, just as it has done for consumers elsewhere around the world," said RILA President Sandy Kennedy.
Background on Chip and PIN
Chip and PIN cards dramatically enhance card security and reduce cyber threats by rendering the basic card information, which today is contained on a magnetic stripe, useless to thieves. The Chip is enabled with a dynamic security feature that generates a unique security code for each transaction, ensuring that the card being used is not counterfeit. The requirement that the cardholder use a PIN ensures that the card is in possession of the rightful person. This two-factor authentication technology is in place in nearly every other G-20 country today and the reduction in fraud has been substantial.
According to the Federal Reserve, PINs on debit cards make them 700 percent more secure than transactions authorized by signature. (Federal Reserve. "2011 Interchange Fee Revenue, Covered Issuer Costs, and Covered Issuer and Merchant Fraud Losses Related to Debit Card Transactions." March 5, 2013 http://1.usa.gov/1xhPXph)
Many merchants already have Chip and PIN-enabled terminals in place today and the entire retail industry is on track to have completed an enormous investment in order to be able to accept Chip and PIN cards next year. But, banks, credit unions and card companies such as Visa, MasterCard, American Express and Discover intend to begin issuing chip cards in the U.S. without the crucial functionality of PINs.
Regulators and law enforcement have also expressed support for moving towards more advanced Chip and PIN card technology used in Europe and elsewhere throughout the world today.
Card networks Visa and MasterCard have endorsed PIN technology elsewhere:
- From a 2013 joint submission by Visa and MasterCard to the Australian Competition and Consumer Commission:
- "Requiring the use of a Personal Identification Number rather than permitting signature as a means of customer authentication for all, or almost all, transactions at Point of Sale is a proven method of reducing card fraud."
- "It is much more difficult for a fraud perpetrator to ascertain a PIN than to forge a signature. Accordingly, one of the most effective ways of combatting fraud (particularly Lost/Stolen and NRI fraud) is to make the use of PIN for customer verification compulsory."
- Mandatory PIN usage was so important to Visa and MasterCard in Australia that the two networks proposed a communications strategy to educate cardholders about the importance and need for PIN through "multiple phases of media campaigns across media including print, out of home, POS, television and digital to raise cardholder awareness of the change to mandatory PIN."
- According to the Federal Reserve Bank of Kansas City:
- "[A]s long as card issuers maintain [sic] the magnetic-stripe, either alone on payment cards or along with a computer chip, they will continue to be a significant and possibly increasing source of counterfeit card fraud."
- "Many countries that use EMV payment cards do not allow cardholder authentication with signatures. Issuers in the United States, however, appear likely to continue to allow signature authorization on EMV debit and credit card transactions. As a result, fraud on lost or stolen cards may not decline in the United States."
- "If weaker authorization protocols continue, such as signature for card payments rather than PINs, the degree of fraud reduction that can be achieved will be limited."
RILA is the trade association of the world's largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.
 Visa Worldwide Pte Limited and Visa AP (Australia) Pty Ltd and MasterCard Asia/Pacific Pte Ltd Submission to the Australian Competition and Consumer Commission in support of Application for Authorisation. July 4, 2013.
 Sullivan, Richard J. "The U.S. Adoption of Computer-Chip Payment Cards: Implications for Payment Fraud." Federal Reserve Bank of Kansas City, First Quarter 2013.