Press Release - Chip Cards in the United States: The PIN, PINless, Debit, Credit Conundrum

U.S. merchants are largely in favor of credit card PIN verification, but is it worth it?

Boston, July 28, 2016 - EMV transactions now dominate card-present payments across the globe, except in the United States. In October 2015 U.S. merchants became liable for fraudulent chargebacks on any transactions that used an EMV card in a non-EMV-capable point of sale. Beyond the protection from counterfeit card fraud provided by the EMV chip, merchants are pushing for credit card PIN verification. But would chip and PIN really increase security and reduce fraud for merchants?

Aite Group’s latest report, Chip Cards in the United States: The PIN, PINless, Debit, Credit Conundrum, explores the factors involved in PIN implementation, identifies the impact and challenges, and provides quantifiable data related to industry costs and merchant and issuer perceptions of the issue.

Aite Group’s study found that while the cost to implement PIN for all cards at merchants with PIN pads already installed is low, the costs are much higher for merchants that have yet to install PIN capability. The resultant industry-wide economic impact is significant—more than US$4 billion. Issuers would also face significant incremental expense, including the costs to reissue cards, establish and maintain a PIN management system, educate customers, and modify ATMs and interactive voice response platforms. Issuer costs total more than US$2.6 billion, which would result in a five-year fraud-avoidance benefit of about US$850 million.

So are these costly moves worth it? The most prevalent type of U.S. card fraud is counterfeit fraud, which accounts for 45% of fraud, and the EMV chip is very effective against counterfeit card fraud. The PIN is effective at counteracting lost/stolen fraud, but this type of card fraud only accounts for 9% of total fraud. And while PIN implementation would impact lost/stolen fraud, it would have no corresponding impact on merchant liability, since merchants with EMV terminals are not liable for lost/stolen fraud in nearly every use case. 

“With very little incremental risk for merchants and significant expense and implementation challenge for the payment ecosystem, it is difficult to justify a mandate to implement PIN as a credit card verification method,” concludes senior analyst Thad Peterson. 

This report mentioned MasterCard and Visa.

 


About Aite Group:
Aite Group is a global research and advisory firm delivering comprehensive, actionable advice on business, technology, and regulatory issues and their impact on the financial services industry. With expertise in banking, payments, insurance, wealth management, and the capital markets, we guide financial institutions, technology providers, and consulting firms worldwide. We partner with our clients, revealing their blind spots and delivering insights to make their businesses smarter and stronger. Visit us on the web and connect with us on Twitter and LinkedIn.

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Aite Group

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