In October, merchants took on additional liability on card transactions. Previously, card issuers carried that liability alone. Now, in the event of a fraudulent transaction, whichever party hasn't upgraded to EuroPay, MasterCard and Visa chip technology, whether a merchant upgrading its credit card terminal or a card issuer upgrading to chip cards, bears the cost. The change is the first step in transitioning United States payment practices, which rely on magnetic swipe cards, to the chip cards that predominate elsewhere.

In 2014, U.S. issuers accounted for $3.9 billion in counterfeit fraud, representing 24 percent of global fraud losses, according to a July Nilson Report. Counterfeit card fraud occurs when card details are skimmed to make new cards for illegal sale and use.

Chip cards, regardless of whether they’re authorized with a signature or a personal identification number, or PIN, are said to reduce such fraud. “The chip creates a unique transaction code for every purchase that can’t be replicated by counterfeit cards,” according to the PCI Security Standards Council. If someone skims a card and tries to use the unique code a second time, it’ll be flagged as a questionable purchase, explained a MasterCard spokesperson.

Signature Vs. PIN Debate

The American Consumer Institute Center for Citizen Research has long protested chip-and-signature cards, contending that signature authentication is not as safe as entering a PIN to authenticate a transaction. In a statement released in October, president Steve Pociask cited U.S. retail banks’ reliance on PINs to conduct transactions as an argument for avoiding chip-and-signature cards. “If financial institutions believe PINs are secure enough to protect American bank accounts, they should agree to couple them with chip-equipped cards to ensure consumer credit transactions are more secure,” he argued. “Credit card issuers, the big banks and the card processing networks … essentially argue that we should ignore the documented benefits of chip-and-PIN payment cards across the world and adopt a half measure here at home instead.”

Both a MasterCard spokesperson and U.S. Bank head of commercial card product and marketing Mary Miklethun acknowledged that chip-and-PIN cards protect lost and stolen cards, while signature cards do not. Both also noted, however, that counterfeit fraud is a bigger problem than fraud on lost and stolen cards. It accounts for 37 percent of all U.S. card fraud, compared with 14 percent for lost and stolen credit card fraud, according to a report for which Aite Group interviewed executives from 18 of the top 40 U.S. card issuers and payment networks in April and May 2014.

The MasterCard spokesperson added, “Right now, the biggest problem in the U.S. is counterfeit fraud. [Lost and stolen card fraud] is a concern—we don’t want any fraud in the system—but it’s not as big of a problem. Getting the U.S. economy to chip was the first priority.” Miklethun added, “Just implementing chip alone would solve [a large percent] of the problem.”

Still, as long as the industry is taking the trouble, why not roll out PIN cards universally?

Deciding Factors

For starters, the networks have allowed card issuers to decide, and those banks take into account the impact on their cardholders' experience and convenience. “If [the bank’s] portfolio tends to be a lot of debit cards, people are used to entering pins. If [the bank] has a lot of credit cards, maybe people are more comfortable signing," the MasterCard spokesperson said.

Payment industry players also were concerned users might forget their PINs, especially while traveling, resulting in declined cards and further inconvenience, Miklethun said. That's even more likely than in the consumer sector, in which cardholders more typically choose their own PINs, she noted.

"The recommendation from MasterCard, and all the card networks, was to take a look at your business and your risk for fraud, think about the experience you want the cardholders to have, then you decide,” the spokesperson said. “It’s not up to us to mandate what’s the best thing for cardholders, but it’s up to us to keep the U.S. ecosystem secure.”

Visa also had cautioned that U.S. credit card infrastructure was not built for PINs, according to Miklethun. While Visa can carry and process PIN transactions, “the nodes or connections in between the merchant, the merchant’s processor and acquirer may not yet have the infrastructure in place to carry PIN,” according to a Visa spokesperson.

“We didn’t want to take the risk that the credit card system wasn’t ready for PINs and we would potentially impact our cardholders’ ability to complete a transaction,” Miklethun said. “At the end of the day, that was the most compelling argument for us.”

Still, she suspects the market will migrate entirely to PINs eventually, and U.S. Bank cards offer both PIN and signature authentication options. “A more accurate term for a chip-and-signature card is that it’s signature preferring,” Mikelthun explained. “We do issue PINs, as well, because we have PIN authentication in our list of verification methods. It’s just not first on the list.” That means most U.S. merchants will ask U.S. Bank cardholders to sign, but the PIN capability enables the cardholder to use payment terminals that require a PIN.

Status Check

Even when chip cards and chip-enabled terminals are present, some merchants have trouble processing the cards and then resort to swiping them or entering numbers manually. Based on Visa’s experience during other countries’ migrations to chip cards, it could be five years before 90 percent of transactions are processed using a chip card and a chip terminal, according to Visa’s website.

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By Nov. 1, U.S. Bank had replaced all Travel Cards with chip cards, a spokesperson told BTN through email. It'll exchange other commercial cards, including Purchasing and One cards, as they expire.

Bank of America Merrill Lynch automatically issues chip-and-PIN cards to new clients and will issue them as cards are lost or stolen or as they expire, a spokesperson told BTN through email.

JPMorgan Chase has issued more than 66 million chip-and-signature credit and commercial cards and chip-and-PIN debit cards and expects more than 70 percent of its cardholders to have chip cards by the end of 2015, a spokesperson told BTN in an email.

And as of January 2015, more than 50 percent of U.S. BMO cards and all U.S. ATMs were chip certified, BMO vice president of North American corporate card products Steve Pedersen previously told BTN.

For American Express, all U.S. corporate, consumer and small business card products are available with chip-and-signature security upon request, a spokesperson told BTN in an email. Otherwise, Amex will issue chip-and-signature cards upon renewal or replacement. The card network expects the “great majority” of its cards to be chip-and-signature by the end of 2015. It has offered chip-and-PIN cards for more than 10 years in countries like Australia, Canada, France, Germany, New Zealand, Spain and the United Kingdom.

As of Sept. 30, nearly 40 percent of U.S. MasterCard branded consumer credit cards were chip enabled, and 32 percent of Visa's credits cards in the United States were chip enabled.