The hearing took place nearly three weeks after an Oct. 1 deadline for retailers to update their payment terminals to accept chip cards or face liability for card fraud.
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"I am game to go the route to [chip card support] but would really like to feel what I'm doing is really going to help," said Keith Lipert, owner of the Keith Lipert Gallery in Washington. "A fraudulent card is still going to pass through the system" with the chip-and-signature transaction.
Lipert appeared before the House Small Business Committee on behalf of the National Retail Federation. The NRF is the biggest retail organization in the world and represents all the major retail store chains. Lipert owns a small art and jewelry gallery that he runs with a co-worker.
Lipert said that a new chip card will protect card data between a merchant and a bank, but it won't protect against a lost or stolen chip card that's used in a store, nor will it help in preventing fraud in online and phone transactions.
Jared Scheeler, managing director of Hub Convenience Stores in Dickinson, North Dakota, said banks should willingly support PIN security with chip cards since they often own ATM machines that require a PIN to withdraw cash. "If [banks] require [PINs on ATMs] there must be something to that, and we, as retailers, should have that option also." He appeared on behalf of the National Association of Convenience Stores.
Visa and MasterCard, along with nearly all the major U.S. banks, back the use of signatures with chip cards, instead of PINs (personal identification numbers). Bankers and card companies appeared before the same committee two weeks ago to present their case.
In advance of the latest hearing, the Electronic Payments Coalition issued a statement that supported chip and signature. "Large national retail associations are using this hearing to push for a 'security' solution — PIN — that wouldn't have done anything to stop the breaches at Target, Home Depot or Michaels," said Sam Fabens, a spokesman for the coalition, which represents banks and card companies.
A PIN "would not have a meaningful impact on overall payments fraud, and retailers are simply using it to distract from the fact that they don't have to abide by any security standards, which leaves consumers' personal and financial information vulnerable," Fabens added.
The hearing didn't only focus on whether PINs are needed, and included comments by three of the four businesses present about the high costs of converting to chip-card payment terminals and the supporting software.
Scheeler said his company, Hub, has four retail outlets in North Dakota that sell gasoline and merchandise where it has cost about $44,500 per store to convert fuel dispensers and payment terminals to accept the chip cards.
By contrast, a fourth business owner at the hearing, Jami Wade, said her costs were just $300 to convert a single payment terminal at her restaurant, Capitol City Cork, in Jefferson City, Mo. She said one of her regular dining customers also runs a business that processes her card payments, which helped her prepare for the chip card conversion.
Paying to convert "is the cost of doing business," she said. "I look at it as another insurance policy that's peace of mind for me."
Art Potash, CEO of Potash Markets in Chicago, said it cost his company $8,000 to convert to chip cards for two of three stores at a cost of $1,000 per payment terminal. The backend software won't be ready until the end of November, he said.
In making the case for PIN authentication, Potash added, "PIN works today and we face the busy holiday season with greater fraud liability over our heads."
Committee members asked why banks and card companies support the use of a customer signature when using a credit card over a PIN. One witness, Ed Mierzwinski, director of consumer programs for the nonprofit U.S. Public Interest Research Group, asserted that banks and card companies support the signature because it results in greater revenues for them than processing via a PIN.
He asserted that Visa and MasterCard own networks that process signatures, and that there are more businesses to compete with the credit card companies to process PIN transactions. "Visa and MasterCard have long functioned as a cartel with market power to drive traffic to their own payment networks which are signature-enabled, not PIN-enabled," he said in a statement. "They earn much higher merchant swipe fees."
Fabens of the Electronic Payments Coalition didn’t contradict Merzwinski’s characterization when asked for a reaction, and conceded that electronic payments are “a competitive market.” He noted that retailers are planning to introduce alternative payment systems and face no legal barrier in doing so.
It isn't clear how the House committee will use the testimony other than to understand more clearly the controversies related to the chip card rollout in the U.S.
"We are not here to take sides," said committee Chairman Steve Chabot, R-Ohio, in a statement.
"We are in the midst of a private-sector transition, not something mandated by Congress or the Administration but something initiated by the free market, Chabot said. "Any change is hard, but when it impacts millions of people, controversy is inevitable … We've had tremendous pushback from all sides. To me, this only confirms that this is the right issue, the right time and the right venue for a fair, open conversation ….[to] help us understand this issue more clearly."