Obama issues credit card industry bailout by executive order
BAIL OUT: President Obama signs an Executive Order on “Improving the Security of Consumer Financial Transactions,” to mandate chip-and-pin credit cards for government vendors.
By Yaël Ossowski | Watchdog.org
The credit card industry got a huge boost from President Obama last month when he signed an executive order requiring a switch to chip-and-pin technology for government vendors and agencies.
It dictates the Department of the Treasury “take necessary steps” to guarantee payment terminals authorized by the agency have “enhanced security features” by January 2015. It would require a complete upgrade of all credit card machines approved by the Department of Treasury, a cost borne by government agencies instead of credit card firms.
Visa and Mastercard have pledged to fully adopt chip-and-pin technology by October 2015.
Precipitated by high-profile data breaches at credit card terminals at retailer Target in January of this year, the president’s order is akin to a credit card industry bailout, known as the “BuySecure initiative.”
Obama signed the executive order Oct. 17 at the office of the Consumer Financial Protection Bureau.
“I want to thank all the business leaders who are choosing to protect their companies and their customers from the kind of hacking that we saw too many times this past year,” said Obama at the signing ceremony. “I want to encourage every retailer, every bank, and every credit card company to join them in this effort.”
The new policy would “upgrade retail payment card terminals at Federal agency facilities to accept chip and PIN-enabled cards,” according to the White House’s fact sheet.
The estimated cost for updating all credit card terminals and machines is at least $8 billion, according to Javelin Strategy and Research. Obama is guaranteeing a huge amount of income for credit card companies, an effective bailout.
“This debate has been going on for quite some time in our industry, and we’re very happy that financial cards would be moving away solely from moving from magnetic strips,” said Al Vrancart, founder of the International Card Manufacturers Association, the world’s largest lobby for the credit card industry.
SUBSIDIZED SWITCH: President Obama has mandated that government agencies use chip-and-pin terminals and technology.
He told Watchdog.org the requirement from President Obama’s executive order will go a long way to aid the credit card industry adopt this technology.
“Anything that comes out of Washington as a mandate will certainly help, but they got their wake-up call with the data breaches at Target and Home Depot,” he said. “I think it’s supportive to the overall chip cards being used in other market segments other than financial. There are vertical markets, including government-issued cards, and benefits cards that will now use this technology.
“The General Services Administration has to start building this into their contracts and requests for bids starting in January,” he told Watchdog.org. “So the question is, is the infrastructure going to be ready to handle these types of cards? Hopefully so.”
Vrancart points out that as chip-and-pin cards will be industry standard by October 2015, a boost from the Obama administration helps subsidize the early push to convert point of sale terminals across the country.
Since the announcement of the executive order, credit card firms have been in unanimous support.
“The Smart Card Alliance commends the federal government’s plans to apply EMV chip technology to newly issued and existing government credit and debit cards, as well as agencies’ payment terminals,” said Randy Vanderhoof, executive director of the Smart Card Alliance, in a statement.
“The government is validating the commitment from the payments ecosystem, including payment brands, issuers and merchants, to move to chip technology. This initiative will help raise awareness to the security benefits chip cards provide and may accelerate the U.S. move to the technology.”