The FBI has found itself in the middle of a blow up between banks and retailers following a fraud alert it released. The alert advised consumers with new computer chip embedded credit cards to still use PIN numbers when using the card.
Banking experts say the alert came from left field for banks, which resulted in them going into overdrive and putting pressure on the FBI to withdraw the notice. This prompted some lawmakers to question why. Merchant groups are being accused of "banking lobby" for lying and exerting pressure on the bureau to withdraw the alert.
Nick Holland, an analyst at Javelin Strategy & Research says, “The FBI has accidentally stepped in a hot-button political issue."
Credit card swipe fees are an ongoing war between giant retailers like Target Corp and Wal-Mart Stores Inc., and credit card companies and issuing banks like JPMorgan Chase & Co and Visa Inc., with PINs, being the latest battle.
He says retailers have never liked the fees associated with accepting credit cards - about 2 percent per transaction - which are set by Visa and MasterCard, which claim the fees go to fund security and technology upgrades.
By weighing in on PINs, Holland says the FBI inadvertently backed a retailer strategy to slice interchange fees. Banks oppose PINs for credit cards, because their research shows it annoys customers as it slows down their check out time, sometimes prompting them to pay with cash or debit cards, which carry a much lower swipe fee.
Retail groups say that PINs are designed to protect shoppers, and the FBI’s warning confirmed that. They claim they had no part in getting the bureau involved.
Brian Dodge, a spokesperson for the Retail Industry Leaders Association says, “The FBI’s alert should be a wake-up call to the banks”, but bank lobbyists have taken credit for getting the alert pulled.
Doug Johnson, the American Bankers Association’s cyber-security expert says, “We did have a conversation with the bureau. Our main concern, frankly, was the characterization of PIN."
Both banks and retailers concede that underneath the security fight is fees, but they still blame each other for that.
The FBI’s warning was timed to coincide with the U.S. rollout of chip cards which are designed to make it difficult for criminals to create counterfeit cards using a stolen account number.
FBI spokesperson Carol Cratty says the bureau has now reissued its alert but with changed wording “to clarify the security safeguards associated" with chip cards.
In a statement to lawmakers who questioned the alert withdrawal, FBI Director James Comey says, “We withdrew because our worry was we’re going to confuse a whole lot of people who are going to roll into places saying, ‘Where is the chip and PIN?. And it isn’t widely available.”