Wal-Mart Stores Inc. filed a civil complaint against Visa Inc. on May 10, 2016, in the New York state court. The Bentonville, Ark.-based retailer asserts it has a right to mandate PIN as the only authentication method for Europay, MasterCard and Visa (EMV) debit cards at the POS. Current Visa guidelines allow consumers to use PIN or signature when using chip-enabled cards, a less secure and costlier practice, Wal-Mart representatives stated.
“PIN is the only truly secure form of cardholder verification in the marketplace today, and it offers superior security to our customers,” said Wal-Mart spokesman Randy Hargrove. Chip cards are commonly combined with PINs for verification in other countries and are inherently more secure than those used in conjunction with signatures, he added. “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.”
When Wal-Mart began to require PIN verification of debit cards in 2015, MasterCard Worldwide was supportive, but Visa pushed back, citing violations to its processing guidelines. This prompted Wal-Mart to seek legal restitution. “PIN verification is much more secure than signature verification,” the legal document stated. “It also enables Walmart to route transactions across PIN debit networks rather than signature debit networks, which saves Walmart (and its customers) money.”
Early tech adopter
Wal-Mart’s 11,530 stores in 28 countries, including 4,500 in the United States, generated $482 billion in revenue in its fiscal year 2016. The company closed 269 underperforming stores and will invest $2.7 billion to enhance infrastructure as part of a “differentiated, disruptive strategy” aimed at building shareholder value, stated Doug McMillon, Wal-Mart President and Chief Executive Officer. A long-time member of the Smart Card Alliance, Wal-Mart was one of the first major retailers to adopt EMV following the Oct. 1, 2015, liability shift in the United States.
“It is widely accepted that PIN is more secure than signature and costs less to merchants,” said Montreal-based attorney Adam Atlas. He noted that migrating from signature to PIN might impact near-term earnings of acquirers and networks, but ultimately using signature as a verification process is unsustainable. “In the long-run, signature should be completely phased out and give way to PIN only, or some other secure authentication method like biometrics, at the brick-and-mortar POS.”
Jamie Henry, Senior Director of Payment Services at Wal-Mart, is chip-and-PIN advocate and has seen the practice successfully deter counterfeit card fraud in other countries. In a panel discussion at the 2010 Smart Card Alliance’s annual summit, Henry called signature authentication “a waste of time” that was slowing down chip-and-PIN adoption in the United States. “Transactions need to be PIN or nothing,” he said.
ATM industry’s PIN-debit battle
As the ATM industry prepares for the Oct. 1, 2016, EMV liability shift, renewed efforts are underway to democratize access to PIN-based debit card networks that are not associated with Visa and MasterCard. The National ATM Council, a not-for-profit trade association dedicated to representing the business interests of independent ATM deployers, has been engaged in this fight since 2011. NAC has alleged that Visa and MasterCard network rules violate the Sherman Act’s prohibition against unreasonable restraints of trade by limiting the revenue that ATM operators can earn.
NAC is seeking a preliminary injunction against ATM access fees that inhibit competition. The case, originally filed in 2011, was dismissed in 2013 and recently reinstated. Following is an excerpt from NAC’s revised complaint filed Feb. 23, 2016, in the U.S. District Court: “By its very terms, the ATM access fee rule prohibits ATM operators from charging a higher access fee for a Visa or MasterCard transaction than they do for a transaction on another network. Thus, the rule prevents ATM operators from charging different fees for different network brands, regardless of differing network costs.”
Bruce Wayne Renard, Executive Director of NAC, could not comment specifically on Wal-Mart legal proceedings because he has not reviewed the suit, but he did say, “As a general matter, NAC supports efforts to enhance the security of our customers’ payment cards, including a fair and reasonable transition to chip technology. However, NAC vehemently opposes any efforts by the national networks to use the EMV transition to impose excessive liability for chargebacks on ATM operators or merchants, or to unfairly disadvantage unaffiliated debit networks.”