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Banks Opting For Less Secure Signature Cards

Many major U.S. banks could be looking toward better security measures that use chip-and-PIN technology, but instead are opting for new credit cards to use chip-and-signature security, The Wall-Street Journal reported.

More than a half-billion new credit cards embedded with computer chips are anticipated to be rolled out this year, according to the WSJ report, but the new cards still don’t use technology to prevent fraud if stolen or lost. Europe, Australia and Canada have already adopted the chip-and-PIN technology that’s said to be the most advanced, but U.S. banks have not gone this route. The chip-based cards are said to reduce the chance the data on the cards can be stolen, but with the use of PINs, it’s even harder to crack.

“U.S. bank executives said they are choosing the signature version so customers won’t be burdened at the checkout line to remember a new four-digit code,” WSJ reported.

Instead, financial companies are working to release signature-based chip credit cards this year. These cards are said to be more secure because they are inserted into the bottom of the cash register terminal and not swiped. The cards are left in the terminal until the customer signs for the purchase. Discover, J.P. Mogan Chase, Bank of America and Citigroup are all expected to release chip-and-signature cards this year. Whether or not merchants are ready for the change, they will have to adapt or put themselves at risk.

“Financial institutions are motivated to bolster security, as they are typically on the hook for unauthorized transactions,” WSJ reported. “That will change in October when merchants who don’t have the upgraded technology to accommodate chip cards will be responsible for the cost of any fraud that occurs when one of the cards is used.”

Martin Ferenczi, president of North American operations for Paris-based Oberthur Technologies, told WSJ that discussions about requiring a PIN or signature “is a very strong debate in the industry.” While chip cards will still have magnetic strips, merchant adoption remains another issue.

“Merchants are also scrambling to install new technology at the cash register to accept the cards, spending billions of dollars on upgrades. A payment-industry group estimates that roughly half of U.S. merchant terminals will be ready to accept the new chip cards by the end of 2015, representing 80 percent of U.S. purchases,” WSJ reported.

The debate about chip-and-PIN cards versus chip-and-signature centers on the customer service issue as there are concerns that customers will forget their PIN numbers and merchants won’t be able to comply with the new technology. But Merrill Halpern, assistant vice president of card services at United Nations Federal Credit Union, said this shouldn’t be the reason to opt for signatures over PINs.

“We should be doing the most we can to fight fraud, and the only way to send that message is to stand clearly behind chip-and-PIN,” he said.

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