Research & Commentary: Chip-and-PIN Mandate

Published March 4, 2014

Since the recent financial data breaches at Target and other stores, several legislators and consumer groups have called for new regulations requiring banks and retailers to transition from the current magnetic strip, swipe, credit card system, the primary one used in the United States today, to a chip-and-PIN system, the current European standard. There are obvious benefits of that secure credit card system, but government regulations requiring the transition are unnecessary—the private market is already moving to improve security. Forcing change now will only increase costs for everyone, including consumers, retailers, and banks. 

Chip-and-PIN cards, also known as EMV cards (Europay, MasterCard, and Visa) use an embedded microchip and personal PIN to complete a credit transaction. Chip-and-PIN cards are more secure than magnetic stripe cards, but they are more expensive—each card costs a few dollars to produce, whereas magnetic strip cards cost only a few cents. Replacing the magnetic strip cards would be an expensive process. In addition to the cost of the cards, banks and individual retailers would bear the cost of installing new card-reading equipment. Also, the need to enter a PIN at point of sale likely would increase check-out wait times. 

Despite these added costs, the credit industry is already moving toward chip-and-PIN technology, having found improvements in financial data protection worth the investment. To make the cost of implementing the new system more bearable for consumers, retailers, and banks, the industry is performing the shift gradually. Forcing an accelerated timetable would increase costs and complicate the transition. A government-regulated transition might even suppress innovation—chip-and-PIN transactions may soon be supplanted by a superior technology, so regulations locking in chip-and-PIN would stifle this growth. 

To provide a financial incentive for merchants to adopt the new technology, several card companies have set a deadline for a “liability shift” for transaction fraud. This means after a certain date, the financial liability for payment-card fraud shifts from banks to retailers who do not implement new technology. In short, whoever has the less-secure technology bears the greater liability for any fraud that occurs. This policy pushes both parties to invest in the new system. Many of the credit companies have aimed for October 2015 for this transition. 

Not every problem requires government regulation to solve. There is a market value for improving the security of financial data, and both the credit industry and retailers are moving to improve their payment systems. Instead of imposing a chip-and-PIN mandate, the government should allow the market to come to agreement on how to improve security and develop the technologies to make electronic transactions safer. 

The following articles examine credit card safety and the chip-and-PIN system from multiple perspectives.

Chip-and-PIN: Success and Challenges in Reducing Fraud
Douglas King of the Federal Reserve Bank of Atlanta describes the impacts of EMV chip-and-PIN on card fraud in markets that have adopted the technology. He also analyzes card fraud trends in the United States during this nearly global EMV chip-and-PIN migration. 

A Chip and a PIN: The Future of Credit Cards
Gene J. Koprowski of Fox News discusses the growing concerns over credit card fraud after the Target breaches and the call to impose a move to chip-and-PIN cards. 

Why the United States Hasn’t Changed Its Credit Card System
Natalie Rutledge of explains why the United States has been slow to move away from the magnetic strip credit card. 

The Basics of Chip-and-PIN Credit Cards
Writing in the Washington Post, Becky Krystal reports the basics of chip-and-PIN cards and the effects on travelers. 

Are Chip and PIN Credit Cards Coming?
This article from Bankrate discusses the implementation of chip-and-PIN in the United Kingdom and how the system could work in the United States. 

Why Chip-and-PIN Technology Is Not a Fraud Cure-All–pin-technology-is-not-a-fraud-cure-all-1059323-1.html
Penny Crosman of American Banker examines the limitations of chip-and-PIN and cautions this system is not a cure-all for credit card fraud. 

Chip and PIN Is Broken
The authors of this paper examine possible flaws with chip-and-PIN and demonstrate how criminals can use stolen chip and PIN smart cards without knowing the PIN. They say the system is in fact broken because “verified by PIN”—the essence of the system—does not work. 

October 2015: The End of the Swipe-and-Sign Credit Card
Tom Gara of the Wall Street Journal describes the credit card companies’ efforts to implement chip-and-PIN technology and the timetable for widespread use in the United States. 

Can Smart Cards Reduce Payments Fraud and Identity Theft?
Federal Reserve Bank of Kansas City senior economist Richard J. Sullivan explains the potential of smart cards to provide strong payment security and thus greatly reduce card fraud and identity theft. But adoption of smart cards in the United States faces some significant challenges, he notes.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other tax topics, visit The Heartland Institute’s Web site at, Budget & Tax News at, and PolicyBot, Heartland’s free online research database, at 

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or [email protected].