News

Is chip and PIN worth the expense?

July 28, 2016

Merchants are pushing — and in some cases, suing — for credit card PIN verification. But would chip and PIN really increase transaction security and reduce fraud for merchants?

A new report from Aite Group, "Chip Cards in the United States: The PIN, PINless, Debit, Credit Conundrum," explores factors involved in PIN implementation, identifies the impact and challenges of deployment, and provides quantifiable data on industry costs and perceptions among merchants and issuers.

In its study, Aite Group found that, for merchants who have keypads installed, the cost to implement PIN is low, but for those who have yet to deploy PIN capability, it is much higher — more than $4 billion, all told.

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 $2.6 billion and translate to a 5-year fraud avoidance benefit of about $850 million.

So are these costly moves worth it? The most prevalent type of U.S. card fraud is counterfeit fraud, at 45 percent. The EMV chip is very effective against counterfeit card fraud.

The PIN is effective at counteracting lost or stolen card fraud, but this accounts for only 9 percent of all card fraud. And while PIN implementation would affect lost and stolen fraud, it would have no corresponding impact on merchant liability, since in nearly every use case, merchants with EMV terminals are not liable for this type of fraud.

"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," said senior analyst Thad Peterson.