Why wasn’t Chip-and-PIN introduced to the United States?

As you are probably aware, the credit card industry in the United States has undergone a major change in the past few years. The magnetic stripe which has graced the credit card since the 1970s is being phased out and new EMV cards have been introduced. But a quick Google search on the subject has raised one question: Why did the US introduce chip-and-signature EMV cards when the rest of the world have gone with Chip-and-PIN EMV cards?

Here in the United States we are behind the times. We like to consider ourselves trendsetters and a global economic power but when it comes to innovation in the credit card industry we are at least five to ten years behind Europe. Chip-and-PIN EMV cards were introduced in Europe in 1994 as a method to stop or at least hinder credit card fraud. In that regard they have been highly successful but credit card fraud has simply moved to the virtual world instead. The desire to cut down on credit card fraud is also what led to the move here in the US as well.

So why did we go only half way? Merchants had to upgrade and install new equipment and consumers are being issued with new cards. It seems like it would have been easier to go all the way to Chip-and-PIN when given the ability to start fresh, especially since the rest of the developed world has already worked out most of the kinks. The reasons behind our move seem to be fourfold:

1. Studies show that consumers have trouble remembering a PIN. If they cannot remember a PIN they may not make a purchase and that would hurt merchants and the economy. Those consumers will always be able to sign their name.

2. It allows for increased revenue since a new category of interchange fees can be created for signature credit and debit cards thereby bringing in more revenue for processors, banks and the government. While the revenue generated may not be substantially more than other interchange fees it can still potentially be more.

3. For issuers it can also decrease costs as a PIN must be mailed to a consumer. With tens of millions of cards in circulation the cost of postage can add up quickly, not to mention the number of PINs that will have to be re-mailed when consumers do not get theirs or throw it out without opening it.

4. The Federal government simply did not think that the American consumer would be able to adapt to a PIN-based system and went with the more safer route of chip-and-signature, which is something that American consumers were familiar with and would make the transition easier.

Are these reasons good enough? For many they are not. While credit card fraud has not stopped in Europe many of the criminals are looking for softer and easier targets and they have descended on the United States in droves. Online fraud has also skyrocketed all over the world as the EMV security plays no part in a transaction in a card-not-present system. The issue may have also come down to balancing the cost of fraud and the ease of use of the cards. After all if no one uses their card fraud will be all but eliminated but the economy would grind to a halt.

Merchants want to make the checkout process as simple, quick and easy as possible all the while avoiding as much of the cost of fraud as they can so they do not lose any customers. Chip-and-PIN was what they wanted and since most consumers use PINs for debit cards or to unlock their devices they did not believe that a PIN-based system would be too difficult to implement. Banks disagreed and did not want to make the process too difficult and have people not use their cards if consumers deemed it too difficult to do so. It seems that a compromise was reached and chip-and-signature offered the best of both worlds and the banks have said that they wanted to make the transition first and look into upgrading in the future when the technology was better understood. Whether that happens remains to be seen, so stay tuned.