Chip and Pin Credit Cards
What is Chip and Pin?
The new "Chip and Pin" credit and debit card system will mean that instead of signing a receipt to say that you have paid for your goods with your credit card you will instead enter a four digit Personal Identification Number (PIN). The Chip contains encrypted information about the card determining whether it is genuine or not and will verify whether the Pin number is correct. The ultimate aim of the technology behind chip and pin is to ensure "that the card is the genuine item and that the person using it is the true owner."
When will Chip and pin be adapted in the UK?
New cards with the technology enabled will be rolled out nationwide in 2004 and 2005 as old cards reach their expiry date. By the end of 2005 most transactions will be authorised using a PIn number rather than a signature.
Why Chip and Pin?
The old technology used in credit cards of the magnetic stripe containing information about the card combined with a signature as proof of payment approval is not secure. Credit card fraud cost the UK credit card industry £424 million in 2002 and would have cost £800 million in 2005 had Chip and Pin not been invested in. Therefore an alternative had to be found to reduce the ever growing credit card fraud. Chip and Pin is the industries answer to the fraud.
Other technology was investigated before chip and pin was selected
- Identification photographs
- Limited protection against fraud before copies could be made
- Other Biometric identifiers
- Finger prints
- Iris scans
- Voice recognition
- Dynamic signature
- Technologies too immature and expensive to implement right now.
Chip and Pin will help the credit card industry reduce fraud in the medium term and the chip has enough memory capacity to contain other biometric identifiers which could be added at a later date.
No technology is completely proof against credit card fraud. Chip and pin makes the process of credit card fraud more expensive and complex. Ultimately it is just a delaying action against credit card fraud. The personal information contained within the chip on the card is much more secure than that embedded in the magnetic stripe on an old style credit or debit card.
What other countries will adapt the standard?
Well, France has had a system of chip and pin in place since about 1993. It is a slightly different system to the one being adapted in the UK though. France is planning to change its system to comply with the EMV (Europay-Mastercard-Visa) technology standard employed by the new chip and pin cards. Although the UK is the first to change to chip and pin all other European countries are going to make the change. Even if the didn't you could still use your credit card abroad and just sign for it like you used to. For example if you traveled outside of Europe. There are plans to keep the old style magnetic stripe on the card for many years to ensure backwards compatibility in non chip and pin countries. New Zealand and Australia also have a similar chip and pin system.
Will it work?
The credit and debit card industry certainly hope so as they have invested huge sums of time and money in implementing it. By 2005 an estimated 40000 cash machines, 850000 POS (point of sale - where you pay when you buy goods from a retailer) and 122 million cards will have been changed to the chip and pin system. This has cost the credit card industry a lot of money and they are hoping to reclaim much of that by reducing the ever increasing credit card fraud.
It has been trialed in Northampton in the UK. The key findings of this trial were about how best to help people to learn about using chip and pin and nothing about how much it reduced credit card fraud. It wasn't likely to as obviously wasn't the only way to pay for goods via credit card.
The ten year running of a similar chip and pin scheme in France is quoted by some sources as reducing credit card fraud by 80%.
Estimates by 'experts' suggest that we should see a 50% reduction credit card fraud in the UK by 2006.
What if suffer credit card fraud even with chip and pin?
This is where it gets a bit contentious. Previously if the credit card company claimed you had spent some money on your card that you knew nothing about you could ask them to produce a copy of the authorisation slip with your signature on. With chip and pin this is not possible. The fact that the pin number was entered at the POS proves you were there, doesn't it? The banks claim that this is not the case and there will be no change in the liability for teh cardholder. So, if someone spends £500 on a copy of your card and you tell the bank will they say "Fair enough here's the money back?". I don't think so. I think we'll see a move towards how online retailers are treated when a 'card not present' sale is made. That is if the sale is fraudulent the online retailer is liable for the costs.
- Chip and Pin will make it harder to commit credit card fraud
- It is being widely adapted across Europe in the next few years
- Chip and Pin technology will cut credit card fraud by an estimated 50% by 2006.
For more information see the official UK chip and pin website
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"The reason it is taking so long for EMV cards to come to the U.S. is that credit card companies have been willing to tolerate mag-stripe related losses. Switching to EMV would cost U.S. issuers about $3 billion, according to one estimate, and merchants would have to pay not much less to upgrade their point-of-sale equipment. Now that Visa has made it mandatory for all U.S. processors to support acceptance of chip-based transactions by April, 2013 (http://blog.unibulmerchantservices.com/nfc-ascent-pushes-visa-to-speed-up-adoption-of-smart-credit-cards), the dynamics have changed completely. The banks have no option but to build the infrastructure, so once that's done, they might as well start using it. After all, if the U.K. chip-and-PIN experience is anything to go by, switching to it would result in hundreds of millions of dollars in savings from lower fraud losses. U.S. banks would certainly take the windfall if it comes their way."
"Having just received a chip and pin card from my bank here in New Zealand 21/7/2010 I read with extreme interest the figures stated by so called experts in 2006 stating that chip and pin would reduce credit card fraud by up to 50%. Whilst there has been a decrease at shop floor level the actual credit card fraud in the UK has risen by over 43% in 3 years. Oh well at least they have a tracking device on everybody with a card on them!!!!! "
"Australia has no Chip and Pin"