Merchants, in their argument for PIN rather than signature authentication for EMV chip card transactions, may have industry opinion on their side.


According to an informal poll conducted this week by Digital Transactions News, two-thirds of readers agree that the merchants suing the card networks over the issue have a case. The remainder say they don’t.

The issue over the cardholder-verification method for EMV transactions has come to a head in recent weeks with two separate lawsuits.

Wal-Mart Stores Inc. in May sued Visa Inc. over claims the card brand’s rules demand signature authentication for EMV debit card transactions which, as a result, flow via Visa’s debit network rather than the merchant’s choice of network. Weeks later, The Home Depot Inc. filed suit against both Visa and MasterCard Inc. over antitrust allegations and the use of higher-margin signature authentication with chip credit cards instead of PIN authentication.

The merchants have a case, says Adil Moussa, principal at Omaha, Neb.-based Adil Consulting. “Yes, the networks and issuers would prefer signatures because of the higher interchange revenue,” Moussa says in an email to Digital Transactions News. “By switching to PIN, they wouldn’t be able to justify higher interchange rates under the pretext of risk.” Networks determine the rates for interchange, which is collected by card issuers.

While PINs have been used with debit cards for years, they have been rare with credit cards. One issue early in the EMV transition is the readiness of third-party processors that serve issuers to process PINs on credit cards. Also, most issuers choose signature authentication for their chip credit cards because consumers already are used to signing for credit card transactions. Introducing PINs for credit cards is too confusing, at least in the early stages of the EMV migration, they argue.

“Cardholders have been using PINs for their debit cards for decades, and on their cell phones for years and they don’t seem confused,” Moussa says.

Merchants have long battled the costs of accepting credit and debit card transactions, regardless of the presence of a chip in the card. “The interchange rates seem unjustifiable to many merchants given the [low level of] fraud committed,” Moussa says. “What’s more is that PIN can lower fraud even more. So the argument of the card networks is shaky.”

While credit card interchange is unregulated, debit card interchange for big banks falls under the Durbin Amendment to the Dodd-Frank Act. Issuers subject to Regulation II—the formal name for the Federal Reserve’s rule implementing the Durbin Amendment—saw their average debit interchange per transaction fall from a 2004 peak of 41 cents to 24 cents. The regulation applies to financial institutions with $10 billion or more in assets.