The use of smart-chip technology in credit and debit cards is not enough to prevent future data breaches, an industry trade group argues.
Rather, a broader discussion is needed to look at improving security on other channels, leadership at the Consumer Bankers Association said at an event Monday to discuss the state of retail banking.
Bankers are looking to fill the void left after regulatory changes made offering deposit-advance products untenable. They are also struggling with the effects of the qualified-mortgage rule.
Richard Hunt, the association's president and CEO, says he was "surprised" when retailers attacked banks over the Target security breach that impacted about 110 million Americans.
Tension has risen between banks and retailers since the breach. CBA members have issued more than 17 million new cards at a cost of roughly $172 million, excluding fraud costs, and credit unions have issued at least 5 million new cards, Hunt says.
Retailers believe banks and card issuers are to blame for the security lapse because the cards issued are easier to hack than more-secure smart-chip technology used in other countries.
"I've also been surprised over the obsession with chip and PIN," Hunt says. "Chip and PIN would not have prevented what happened at Target. We need to look at other methods."
Banks in Europe and elsewhere that have adopted smart chip technology still experience fraud through transactions where a card is not required, such as for online purchases, says Andy Harmening, CBA chairman and head of the regional banking group at the Bank of the West, a unit of France's BNP Paribas.
"Chip and PIN does not eliminate fraud in the industry," Harmening says. "We know we need to stay one step ahead of the fraudsters. Chip and PIN is certainly one interesting technology and a process we should be exploring. However, if that is done and we aren't looking at data breaches in other areas it will be a very incomplete implementation."
Harmening and Hunt also discussed banks' recent exit from the deposit-advance business because of regulatory pressure. Bank of the West had considered the product but decided against it, Harmening says.
Consumers will have to turn to payday lenders for short-term loans, Hunt adds. "I'd like someone to show me a study that says if you eliminated the product, you eliminate the demand," he says.
A little over a week after banks announced plans to drop deposit advances, a white paper recommended that the Post Office should consider adding certain financial products, including small-dollar loans. This was particularly perplexing, Hunt says.
"We've been hit over the head the last few years making sure we served the underbanked and unbanked," Hunt says. "This was a product that one of our banks offered for 19 years and was always blessed by one the regulators."
The "jury is out" on impact of QM, Harmening says. About 3% of the mortgages originated by Bank of the West would not have been made under the new standards, he adds. The bank has decided to make interest-only loans.
"Will we do less in mortgage lending than we did before?" Harmening says. "Certainly we won't do more. With regards to how much less we'll do, I am not sure."Jackie Stewart is a reporter for American Banker.
Jackie Stewart is a reporter for American Banker.
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