While banks and credit card issuers are slowly rolling out new debit and credit cards containing microchips intended to make them less susceptible to fraud, Home Depot says in a recently filed lawsuit that the two largest card networks have colluded with the banks to produce cards that are not as secure as they should be.
Having been burned by a massive breach of its payment system in 2014, Home Depot was one of the first national retailers to deploy point-of-sale card processors that accept so-called EMV cards.
Even though variations of these cards have been in use in other parts of the world for more than a decade, they are only hitting the wide U.S. market now, and only after multiple, high-profile breaches compromised payment card info for hundreds of millions of Americans.
These cards are also colloquially known as “chip-and-PIN cards,” because in addition to having the chip — which makes it difficult to create fake cards and makes any data stolen from a payment terminal useless to the thief — there can be the requirement that the user also enters a unique PIN to verify they are the card’s rightful holder.
That secondary check would cut down on the use of stolen cards. Additionally, since the chip technology does nothing to prevent fraudulent online purchases, having a PIN requirement would also reduce the instances of fraudulent remote transactions.
“Visa and MasterCard know perfectly well that a signature alone, without the additional step of requiring a PIN, provides virtually no protection against many types of payment card fraud,” reads the 140-page complaint [PDF] filed this week in a federal court in Atlanta.
However, alleges Home Depot, the PIN portion of chip-and-PIN is going largely unused because “Visa, MasterCard, and their member banks have acted in concert to prevent the adoption of chip-and-PIN authentication in the United States on a large scale.”
The complaint claims that the card networks “have pushed consumers to use payment card technology that Visa and MasterCard know is defective and subject to fraud and have colluded with each other and with the banks that issue debit and credit cards to do so.”
The retailer argues that the more secure authentication provided by chip-and-PIN is “less profitable for Visa, MasterCard, and their member banks, and it provides a greater threat to their market dominance.”
This is because, according to Home Depot, PIN-authentication networks charge lower interchange fees — the fee paid by the retailer for each card transaction — than Visa or MasterCard. The company contends that it and other retailers should be able, as they are elsewhere in the world, to access these lower-cost networks, but that Visa and MasterCard have conditions in their contracts with card-issuing banks that restrict their use to just their two networks.
So if Bank X issues a Visa or MasterCard credit card, it agrees to a “no-multi-issuer” condition that limits that card’s use over other networks. While this results in higher costs for retailers, Home Depot says banks don’t really care.
“The issuing banks — the primary shareholders of Visa and MasterCard — have little reason to resist Visa and MasterCard’s attempts to limit the use of PIN technology,” reads the complaint. “These banks profit from Visa and MasterCard’s market power by charging supracompetitive interchange fees on signature transactions.”
The lawsuit also mocks Visa and MasterCard executives’ public explanation for their companies’ resistance to requiring PIN authentication, with one MasterCard exec claiming that “some consumers find it difficult to remember PINs,” while Visa’s chief legal officer said the company did not want to “complicate matters by requiring everybody to adopt PIN everywhere.”
“These justifications are pretextual — the true purpose for Defendants’ joint efforts to favor chip-and-signature in the United States over chip-and-PIN is to protect Visa’s and MasterCard’s inflated profits that are tied to cards using the faulty signature technology,” argues Home Depot. “In short, signature processing permeates the United States market because Visa and MasterCard profit from this well-documented instrument of fraud.”
This is the second recent lawsuit filed by a major retailer over chip-and-PIN cards. Last month, Walmart made similar allegations against Visa.
In a statement to the AP, MasterCard defends the awesomeness of the “chip” part of chip-and-PIN without addressing its shortcomings, or the allegations of collusion.
“Regardless of how the cardholder’s identity is confirmed, the chip makes data much more secure, rendering it almost useless to create fraudulent cards or transactions,” a MasterCard rep explains.
What do you think?
by Chris Morran via Consumerist
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