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jeffbrig,

You wrote, The new Target RedCard (5% discount on store purchases), requires chip + pin. No signature. It's a classic 2 factor authentication: something you have + something you know. Prevents someone from using a stolen card, so there is a benefit to requiring a pin.

While I agree with this in theory, I'm not entirely convinced chip+PIN is that great an idea in practice. The problem with PIN is that PIN entry itself is not secure - people can watch you doing it. What's more with debit cards, Reg E allows the issuer to take a PIN as prima facie evidence that the card was presented by an authorized user. This moves the burden of proof from the merchant and card issuer to the account holder. And the account holder never wins this type of fight.

So the motivation is clear here. Requiring a PIN de-risks the acceptance of debit cards for the merchant (Wal-Mart). In fact it lowers the risk of charge-backs due to fraud to 0% - whether fraud occurred or not. What's more, the fraud may have been facilitated by the merchant's environment; but requiring a PIN absolves them of any responsibility for a loss.

As for credit cards and PINs, there is no statutory or legal precedence in the USA for assuming a PIN establishes the presence of an authorized user. Without legislation, such precedence would need to be established in court. And with no clarity on whether or not adding a PIN would provide the merchant or the issuer real value, requiring it probably makes no financial sense at the moment.

As a final note, adding chip is a huge win in the fight against credit/debit card fraud. It would be especially big if all merchants required the card be physically presented to an authorized reader. Since that's not feasible on the internet, I imagine credit card fraud will persist for some time to come even with the chip...

- Joel
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