Franchising Today - Fall 2016 - 10

CHIP CARDS

The bottom line is that chip cards are
here to stay because they demonstrably
reduce the incidence of fraud.

each time they process a transaction.
A signature is not required.
Given that the days when armies of
bank employees carefully reviewed
signatures on receipts to match them
to signature cards on file are long
past, you may wonder why banks in
the United States - except for a very
few exceptions such as First Niagara -
have not moved to chip and PIN cards
as well. One factor often cited is cost.
Reports I've seen estimating the
cost of adding PINs to the card account data of customers start in the
billions of dollars. Banks allege that
such spending is unnecessary and
wasteful because fraud protection
comes from a chip card's cryptographic key and the unique, one-time code
generated for each transaction. Banks
also assert that customers are not
ready for PINs because they are so
used to signatures.

Still Debating
This debate is far from over. Many
observers challenge the banks' arguments by pointing out that banks
themselves require the security of
10

franchising-today.com

FALL 2016

PINs when customers use ATM machines and when customers access
cash advances on their credit cards.
Given that cash advances already
require a PIN, some commentators
have questioned why card issuers
can't simply use the cash advance PIN
data already in the account record for
retail purchases and thus avoid altogether the associated cost of adding
additional PINs to cards.
Others note that ATM cards have
gotten Americans used to entering
PINs and doubt that retail customers
would balk at using them. Additionally, because a chip and signature card
remains in a reader for a relatively
long time anyway, why not give the
customer something to do while the
transaction is processing?
Finally, the law and lawmakers are
involved. Back in November 2015,
nine state attorneys general wrote
to some of the nation's largest credit
card issuers requesting chip and PIN
cards because of perceived greater
levels of protection. Earlier this year,
U.S. Sen. Dick Durbin raised questions with the Department of Justice's

antitrust division about whether chip
and signature card rules are being
used by banks to hinder competition
because signature cards arguably restrict the number of networks over
which transactions can be processed.
In fact, a major national retailer
filed suit in May against one of the
processing networks alleging that
chip and PIN cards are both more secure than chip and signature cards
and would permit it to route transactions across less-expensive networks.
At the same time, the significant cost
of upgrading POS equipment so as to
handle chip-enabled cards has led to
disputes between some franchisees
and franchisors and, in a handful of
cases, litigation.
The bottom line is that chip cards
- whether verified with a signature or
a PIN - are here to stay because they
demonstrably reduce the incidence
of fraud. Moreover, while the rollout
and activation of chip-enabled transaction equipment have been somewhat plodding so far, such equipment
is proliferating.
Harder questions about whether
chip and PIN cards are more secure
than chip and signature cards, whether retailers and their legal allies will be
able to force the adoption of chip and
PIN cards, and who will ultimately be
responsible for equipment upgrade
costs will continue to be debated in
and out of the courts. So get your pop,
candy and popcorn ready. This episode could be epic.
John Gotaskie Jr. is a partner

in Fox Rothschild LLP, a national
law firm with nearly 750 attorneys
practicing in 22 offices coast to
coast. Gotaskie represents individuals, partnerships and companies in diverse legal matters including complex commercial litigation,
bankruptcy litigation and franchising issues.
For more information, email jgotaskie@
foxrothschild.com.


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Table of Contents for the Digital Edition of Franchising Today - Fall 2016

Contents
Franchising Today - Fall 2016 - Cover1
Franchising Today - Fall 2016 - Cover2
Franchising Today - Fall 2016 - 1
Franchising Today - Fall 2016 - Contents
Franchising Today - Fall 2016 - 3
Franchising Today - Fall 2016 - 4
Franchising Today - Fall 2016 - 5
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