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How The FBI Stirred The Card Swipe Fee Pot

Last month when the FBI issued a statement suggesting that consumers should favor chip-and-PIN cards, little did it know that its innocuous statement directed at ensuring security would become the epicenter of a dispute between banks and retailers.

While the banks felt blindsided by the FBI’s notice and coerced them to take it down, the FBI found itself being accused of bank lobbying by retail groups. Meanwhile, a senior Democratic senator questioned the agency’s decision to take down its statement supporting chip-and-PIN cards and asked if it were “taking appropriate steps to protect consumers,” according to Bloomberg.

“The FBI has accidentally stepped in a hot-button political issue,” Analyst Nick Holland from payments consulting firm Javelin Strategy & Research told Bloomberg.

Over the years, financial institutions, like Visa Inc. and MasterCard, have long held their ground on keeping up the interchange fee as it pays for keeping a check on fraud. But with the statement, the FBI essentially picked the side of merchants who argue the validity of interchange fee charged by FIs.

Traditionally, the nearly 2 percent transaction fee has often been paid by merchants — most of that money funnels back to the banks for covering loyalty rewards and security and technological upgrades. Now, with the FBI supporting the use of PINs for credit cards, banks risk losing the interchange fee as merchants might argue that with a PIN, a credit card is mostly like a debit card and that shoppers would move away from using credit cards if it feels like too much of a hassle.

For now, the FBI continues to find itself in a sticky situation. According to Bloomberg, the agency is expected to write an official response to Senator Richard Durbin’s inquiry about the FBI’s decision to roll back its statement.

“Is the FBI aware that payment card networks and banks in the United States have an incentive to dissuade consumers and merchants from using PINs?” Durbin wrote. “Is the FBI concerned that this incentive may cause card networks and banks to set security specifications that seek to maximize fee revenue instead of maximizing fraud prevention?”

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