Chip-and-signature cards are not the same as chip-and-pin cards
Sarah's work as an academic involves many foreign trips, mainly to Europe, and she's gotten used to problems using her American credit cards when she's out of the country. Until recently, her U.S. plastic came only with black magnetic stripes on the back. That's fine at home, but in many other nations merchants are used to processing transactions using the on-board microprocessor chips that are universal on cards in their territories, commonly referred to as "chip-and-PIN" cards. Many merchants abroad have converted to payment terminals that no longer read magnetic strips.
Chase chooses chips
So Sarah was excited recently when she received her new J.P. Morgan Select Visa Signature Card from Chase. Not only did it come with a microprocessor chip, but it also -- in common with nine other Chase products -- charged no foreign transaction fees. She was, however, mystified by one thing: it didn't come with a four-digit personal identification number (PIN).
As it turns out, the J.P. Morgan Select product is a chip-with-signature rather than a chip-and-PIN card. That's fine in the United States, where signature authorizations are the norm, but what about in many other countries, where the use of PINs is nearly universal?
PINs -- a sign of the times?
In the U.K., for instance, people who are blind or who have dexterity or memory problems are entitled to chip-with-signature cards, even though chip-and-PIN is the country's standard technology. However, PIN-less transactions are so rare that many merchants' employees have never processed one. Indeed, a July 2012 study by the Payments Council, a British industry body that claims it "sets the strategy for U.K. payments," found that consumers are frequently embarrassed or anxious when signing to authorize a payment.
IndexCreditCards.com had an email exchange with one industry insider who should understand the implications of the signature vs. PIN debate. He observed:
Chip-with-signature technology is the standard in Asia, Germany and many other countries around the globe. It has the most universal acceptance which makes it easier for international travelers.
So, most areas should be able to process the chip-and-signature card without much issue. A French person with a PIN-enabled card making a payment in Asia can presumably always sign, but an Asian person in France without a PIN may encounter problems, especially in remote regions away from tourist areas, and when using those automated vending devices (though some reports claim that the transaction will be approved without requiring a signature).
Imagine being in that situation as a foreign tourist, especially in some other countries where you may not speak the language well. This writer has personally witnessed a tourist in a French supermarket pleading that, at home, she could sign for transactions when using her American Express card. The clerk ended the conversation icily: "Madame, vous êtes en France." (You're in France, ma'am.)
Chip-with-signature has downsides
In his email, our industry insider also wrote:
Cards that feature chip-with-signature technology do not require cardmembers to remember another PIN. Also, chip-with-signature technology is EMV compliant, meaning the chip is very secure and cannot be counterfeited.
[EMV is the technology that enables payment card microprocessor chips, and the abbreviation stands for the three companies behind its invention: Europay, MasterCard and Visa.]
Those are two good points: not having to remember a PIN and having a chip that's resistant to counterfeiting are both significant benefits, and the second is one that should soon be enjoyed here in America. EMV is due to be rolled out nationwide over the next two or three years. However, PINs do have other security advantages, as the Payments Council in the U.K. reports on its website.
It suggests that signatures -- which can be forged, and which are frequently not checked at all -- make it easier for a stolen card to be used fraudulently. Meanwhile, a chip-and-PIN card, absent its four-digit number, is useless to a thief. The Payments Council talks about signature authorizations giving "fraudsters a window of opportunity between the time they steal a card and the time the owner reports it lost or stolen."
Credit card companies have a choice
And yet there seems to be a real possibility of most American credit card companies opting for chip-with-signature for their plastic when EMV finally becomes ubiquitous in the United States. According to Visa, that's not a decision that's being foisted on them by the payment networks; it's one they're free to make for themselves.
Why would they choose the less secure alternative? But, in a way, you may not care. After all, it's the card issuers themselves who carry the cost of most fraud, although they may be able to shave a little off annual fees and credit card rates if that burden is reduced.
However, it's a question that needs answering, so it's one this corner of cyberspace plans to return to soon.