In early October, the nation’s premier law enforcement agency, the Federal Bureau of Investigation (FBI), issued a consumer protection advisory regarding new microchip equipped credit and debit cards that warned consumers the new cards with chip and signature technology may not be as secure as they have been led to believe. But within hours, that advisory was inexplicably taken down. The reason, believe it or not, was likely due to objections from the nation’s banking industry.
The FBI’s original public service announcement raised questions regarding the absence of PIN authentication, making it clear that the combination of chip-equipped cards and PINs are significantly more secure than using decades old signature verification. A whitewashed, new advisory was published days later with widespread changes particularly to the areas where the FBI endorsed chip and PIN technology.
According to several press accounts, the revisions were likely precipitated by pressure from the banking lobby despite the fact that the FBI Director himself recently stated at a congressional hearing, “I think the experts at the FBI would say PIN and chip is more secure than PIN and signature.”
The protection advisory was all in response to the October 1st deadline which required merchants to upgrade their point-of-sale terminals to accept the new microchip embedded cards or become liable for any fraudulent charges. For months now, consumer advocates and retailers across the country have been urging card issuers and banks to issue the more secure chip and PIN technology to protect consumers. Chip and PIN provides better protection because it uses a two-prong authentication process where the user is required to enter a four digit PIN number instead of an easily forgeable signature.
Chip and PIN has become the standard around the world – Canada, Europe, Australia and the United Kingdom implemented chip and PIN years ago and since have seen fraud drastically reduced. For instance, when the United Kingdom made the move to chip and PIN, they saw fraud drop almost 60%.
However, banks and card issuers have chosen to ignore this overwhelming evidence by issuing chip cards with outdated signature authentication. They have come up with a litany of excuses as to why they have chosen to forgo PINs in favor of universally ignored signature requirements, including claims that Americans cannot remember another four digit password.
The real reasons banks do not want to issue the more secure chip and PIN technology is their bottom-line. Chip and PIN cards threaten the relative monopoly on the signature verification transactions companies such as VISA and MasterCard have. The signature system has a higher transaction fee, which means more money for them, and less security for consumers.
In short, we are talking about billion dollar corporations not properly protecting consumers who have trusted them with their personal information in order to pad their annual profits. In the meantime, credit card companies are forcing millions of businesses across the United States – most of which are small businesses operating on small margins – to upgrade their point-of-sale terminals for a mere half-measure of protection.
At the end of the day, it is hard to know what is the most troubling part of this story – is it the millions of consumers and countless businesses being left out to dry by the banks? Banks putting profits ahead of properly protecting customers? Or, it is the fact that banks have so much power in Washington, DC that they can force the FBI take down a consumer protection advisory within hours?
One thing is for certain, for once banks and card issuers should let their bottom-line take a back seat and put consumers first by upgrading payment cards to the most secure technology available, chip and PIN.
A printable version is available on Forbes.