Home Depot sues Visa, MasterCard as PIN battle looms

Among a bevy of grievances, the do-it-yourself retailer posits that Visa and MasterCard sought to block the adoption of chip-and-PIN on credit card transactions.

Home Depot filed an antitrust lawsuit in federal court this week against credit card giants Visa and MasterCard.

Among a bevy of grievances, the do-it-yourself retailer posits that Visa and MasterCard sought to block the adoption of chip-and-PIN on credit card transactions following the migration to EMV payment security standards last October. Additionally, the retailer argues that chip-and-signature is simply less secure than its chip-and-PIN counterpart.

"Visa and MasterCard know perfectly well that a signature alone, without the additional step of requiring a PIN, provides virtually no protection against many types of payment card fraud," Home Depot said in the lawsuit filed Monday in U.S. District Court for the northern district of Georgia.

Home Depot also contends that Visa and MasterCard chose to enforce the less-secure chip-and-signature standard because the networks collect higher merchant fees for routing signature-based card transactions as opposed to PIN.

According to data compiled by the U.S. Federal Reserve, transactions routed over Visa's or MasterCard's signature debit networks cost more than twice as much as transactions routed over PIN networks.

"While chip-and-PIN authentication is proven to be more secure, it is less profitable for Visa, MasterCard, and their member banks and it provides a greater threat to their market dominance," Home Depot claimed in the lawsuit. "For years, Visa and MasterCard have been more concerned with protecting their own inflated profits and their dominant market positions than with the security of payment cards used by American consumers and the health of the United States economy."

Home Depot's case against Visa and MasterCard is similar to one Walmart recently filed against Visa. In that case, Walmart says that Visa is precluding the retailer from requiring PINs on all debit card transactions. As a result, Walmart is forced to pay the fees associated with signature-based networks. For world's largest retailer, that figure is in the billions.

Interestingly, Walmart did not file charges against MasterCard.

"This is a broad dispute with Visa over cost that never stops escalating," said Mark Horwedel, head of the Merchant Advisory Group. "The crimes against merchants by the networks are very numerous. From Walmart's perspective, Visa is the leading instigator."

Visa, the world's largest payments network, led the charge for the U.S. migration to EMV chip-card technology. Short for Europay, MasterCard and Visa, EMV is said to reduce fraud in face-to-face, card-present environments via the chip embedded in the cards.

The chip creates a unique impression for each transaction, so the only data flowing through a merchant's point of sale (POS) terminal is a random numerical sequence. The combined chip-and-tokenization process makes it nearly impossible for data thieves to create fraudulent accounts or make counterfeit cards, because the chip itself can not be replicated.

However, many in the payments and financial technology industry have declared the U.S. rollout of EMV a disaster. First there's the issue of security. While the chip makes new payment cards more difficult to counterfeit, it does not address the issue of lost and stolen cards from being used in person or online -- something a PIN could also address even without the chip.

In the weeks immediately following the official EMV migration date, merchant groups, consumer advocacy groups and even the Federal Bureau of Investigation (FBI) called attention to the need to adopt chip-and-PIN in order to take full advantage of EMV security.

Secondly, the EMV migration has been significantly more expensive for merchants compared to issuers because of the associated fees. Horwedel estimates that merchants have outspent the issuers by a ratio of 85 percent to 15 percent.

On the other side of the argument, Visa and MasterCard, along with groups such as the American Bankers Association, have said that requiring PINs with credit card transactions could cause confusion for consumers.

Visa has also said that newer, better authentication technologies -- such as biometric and geo-location verification -- are just over the horizon, negating the need to focus solely on PIN. On this particular issue, Horwedel said it's "all cover for the fact they [Visa] don't want issuers to be forced to move to PIN, but they have not come up with a solution."

So far Visa has not commented on either lawsuit. But in terms of its stance on PIN, Visa has said in the past that the credit card processor does not take a position against it and that the choice to utilize PIN technology or not is up to the banks and merchants. MasterCard also says it leaves the decision of how to verify cardholder identity -- PIN or signature -- up to the merchant and the issuer.