Atlanta-based Home Depot Inc. filed a lawsuit against Visa Inc. and MasterCard Worldwide on June 15, 2016, to challenge chip-and-signature verification, a practice that has largely defined the rollout of smart card technology in the United States. Home Depot is suing the payment card brands for the right to require PIN with every chip card, affirming the practice as a more secure payment method commonly used in 80 other countries that have implemented EMV (Europay, MasterCard and Visa) technology, including the United Kingdom, France and Australia.
The lawsuit claims that Visa and MasterCard have engaged in interchange "price-fixing" and have made PIN entry optional in order to route PIN-less debit card transactions to higher-priced credit card networks. The home improvement retailer is fighting for the right to mandate PIN entry with all chip cards, including debit and credit, to enhance security and have more control and choice over payment card transaction routing.
Payments industry analysts have stated that using signature with chip cards is an expeditious way to help consumers and merchants migrate from magnetic stripe cards to more secure EMV technology; detractors have argued that using chip cards without PIN authentication is both an inefficient use of the technology and an insufficient deterrent to online fraud.
"[EMV] cards offer an extra layer of security beyond the chip itself, by requiring the user to enter a four-digit PIN, thereby ensuring that the individual using the card is the card's owner," the Home Depot lawsuit stated. "Signatures can be copied or forged, and cashiers are not handwriting experts trained to identify forged signatures." "Most other countries have implemented chip and PIN, which is generally a more secure payment method than magnetic stripe cards," said Mark Gazit, Chief Executive Officer of ThetaRay, a global data analytics platform and cybersecurity company. "Retailers need to understand that using chip-and-PIN technology will deter but not completely eliminate fraud."
Home Depot's lawsuit was filed a month after a May 10, 2016, civil complaint was filed by Wal-Mart Stores Inc. against Visa, also seeking to mandate PIN with EMV. That court action, covered by The Green Sheet May 13, 2016, reflects growing dissatisfaction with U.S. EMV implementation among retailers.
"PIN is the only truly secure form of cardholder verification in the marketplace today, and it offers superior security to our customers," Wal-Mart spokesman Randy Hargrove stated at the time. "Visa nevertheless has demanded that we allow fraud-prone signature verification for debit transactions in our U.S. stores because Visa stands to make more money processing those transactions."
In seeking legal restitution, Wal-Mart reiterated that PIN verification is much more secure than signature verification. "It also enables Walmart to route transactions across PIN debit networks rather than signature debit networks, which saves Walmart (and its customers) money," the company's complaint stated.
The Home Depot deposition declaims the use of chip cards without PIN as "defective and subject to fraud." The practice has imperiled U.S. consumers by creating a largely insecure payments infrastructure with "the highest rates of payment card fraud in the world" and subjected U.S. business owners "to the highest payment card related fees in the world," according to the court document.
Wal-Mart cited a 2013 Federal Reserve study that found PIN debit transactions had "the lowest estimated fraud rates by both number and value in 2012." Wal-Mart further noted that debit card networks have traditionally been more cost effective because when merchants can choose where to route transactions, payment card networks must compete for their business. Visa's efforts to make the Interlink network the exclusive PIN debit network for Visa-branded debit cards, and its exclusive signature debit network, have given the card brand an unfair advantage and effective monopoly, Wal-Mart stated.
Merchant advocates expect other retailers that opted out of the $7.25 billion class action settlement between Visa and MasterCard and a group of retailers to come forward. (The settlement, later reduced to $5.7 billion, was to resolve disputes over interchange fees and card brand rules and was approved in 2013 by Judge John Gleeson of the U.S. District Court for the Eastern District of New York. It was voided by a federal appeals court on June 30, 2016, a stunning development covered in our Breaking News section at www.greensheet.com.)
Mark Horwedel, CEO of The Merchant Advisory Group, said merchants remain concerned about smart card implementation and the liability shift that became effective Oct. 1, 2015. The trade association represents many leading U.S. retailers, including Home Depot. Horwedel believes the liability shift has caused catastrophic price increases by shifting the cost of fraud from card issuers to merchants. "I think there will be many more lawsuits to come," he stated.
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