Security increases friction. That's not news. I've written a few blog posts - click here, and here -
on this perennial tradeoff in payments.
However, I recently realized that security measures can actually cause new sources of vulnerability.
Ironic but true.
Since December 2013, India's central bank RBI has made it mandatory for all debit and credit card transactions at the point of sale to require PIN. This is in addition to signature, which has always been required for card present transactions. So, while
some other nations are debating about "PIN or Signature", India has already enforced a "PIN and Signature" regime. But I digress.
In theory, PIN makes card transactions more secure. When implemented properly - as Europe did with EMV over a decade ago - PIN does reduce card fraud without a disproportionate increase in inconvenience.
However, when the same enhanced security measure is implemented in a half baked manner, it not only reduces convenience but increases vulnerability.
Friction from the RBI's latest mandate arises from the fact that most credit cards have 6 digit PIN numbers, which are more difficult to remember than standard 4 digit PIN applicable for debit / ATM cards.
Now, on the ground:
- PIN entered by payers in the existing POS machines is visible to everyone around them. Instead of changing their POS machines to higher models with hoods, banks are dishing out stupid advice like “Use your hand or body to shield your PIN".
- Because they can't access the POS machine in multiplexes, pharmacies, restaurants and many other merchant establishments, customers are asked to speak out their PIN numbers aloud.
As a result, the purpose of PIN is defeated.
While things might improve in future, at this point the "PIN + Signature" regime has caused greater friction and increased vulnerability.
As an aside, the central bank apparently implemented this new security measure to provide more confidence to people to use their payment cards and thereby usher in a cashless society.
For more than one reason, we might be headed for exactly the opposite effect.
- When people received their PIN mailers along with their credit card welcome kits several years ago, they didn't bother with the PIN number since it was only required to make cash withdrawals from ATMs via credit cards, a feature that people used rarely
since it was very costly. As a result, most people don't know their credit card PIN numbers today and few would take the trouble to contact their banks to get their PINs reissued.
- Not all POS machines are equipped to accept PIN for credit card transactions. As a result, many merchants, including two of my Mobile Network Operators, have stopped accepting credit cards.
Ergo, RBI's recent mandate has rendered many credit cards unusable at the POS and it's back to cash for many customers.
How's that for "unintended consequence"?