6 Arguments For and Against the New Chip-and-PIN System

Linsey Knerl • May 24, 2018

New upgrades are coming to a credit card near you, as the industry looks ahead to the widespread adoption of chips in credit cards.

What is a chip and PIN card?

Unlike the current card anatomy, which embeds all the important account info in the magnetic strip on the back of the card, the new chips (sometimes referred to as “EMV”) will be embedded inside the card where information is encrypted. This new development will make cards more difficult to “clone”, or transfer your sensitive payment information to a fake credit card for use at most swipe machines.

While the chip upgrade alone solves a good amount of the fraud that was seen during some of the more notorious data breaches at retailers over the years, it’s not the only technology available, and some experts are calling on the addition of PIN numbers to even further protect data.

How PINs protect cards

A typical chip-and-PIN cardreader.

The 4-digit PIN number is not a new thing. In fact, as long as debit cards have been around, PINs, (whether memorized or not) have been protecting accounts from being used by thieves at retailers and cash machines around the world.

Stores are already set up to require PINS for debit card purchases, so what’s all the fuss about adding PIN technology to the CHIP system for an even more iron-clad approach to defeating data breaches? The most common arguments are as follows:

Cons to a Chip/PIN Combo:

  1. Credit card issuers are the most vocal opponents to the addition of PIN technology over the current plan of keeping signature verification in Chip-based cards. They claim that the cost to add the PIN data to card accounts could run into the billions, and that the Chip technology alone would stop the majority of fraudulent costs at the retailer level.
  2. PIN technology may be difficult to adopt by consumers who appreciate the ease of signature verification. If given the choice between remembering a PIN, or just signing and buying, most consumers prefer the sign option. This would mean that the order of preference for which cards a consumer users could be influenced by which cards are first to come out with required PIN technology. No card-issuing bank wants to be first to take the risk of becoming the less-favored card.
  3. New technology has made the PIN system obsolete, at least to some. With the launch of payment services such as Apple Pay and Samsung Pay, consumers can pay without ever exposing their sensitive account information at the retail level, making popular theft practices such as “skimming” a non-issue for card holders. Credit card companies that were once gung-ho to adopt new PIN technologies may be holding out to let these new payment services bear some of the weight of keeping consumers safe, rather than paying for expensive PIN system upgrades.

Pros to the Chip/PIN Combo:

No one can argue that that the addition of a PIN, however, will combat theft on a level never seen before:

  1. The Target data breach, for example, saw little damage for card-holders with a PIN-enabled account. This older technology protected consumers who may have been otherwise added to the 70 million affected card-holders compromised in the Target breach of 2013. A signature-only card could not have helped in this situation.
  2. PIN-based cards help push the liability to the retailer. Since many stores already have PIN-based checkout options for debit-card users, they can accommodate new PIN requirements and share in the responsibility to help defeat fraud. Card-issuing banks who issued plans to adopt PIN and Chip technology had previously stated that they would no longer bear the financial burden for frauds that happened at physical retail locations once the PIN technology went into effect. This could potentially reduce the cost to banks, and keep credit card costs lower to consumers overall.
  3. Online shopping transactions would be included in the protections. Currently, a Chip-only system won’t help against fraudulent purchases made on the internet. The addition of a required PIN verification could help thwart a total of $3.5 billion in theft purchases annually.

Whether the requirement of PIN technology will see the light of day is yet to be unseen. Previous predictions for cards to be swapped out for shiny new Chip-enabled plastic is being pushed back to the end of 2016 – or even later.

Editorial Note: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

About the Author

Linsey Knerl

Linsey is a finance blogger, author and public speaker with a passion for helping everyday families earn more and live better. In addition to covering the credit card industry in depth on CardRates, she shares her expertise for parents who want to start budget-friendly businesses from home at 1099Mom.com.