This
new measure is expected to reduce card fraud losses
by over fifty percent.
This signals the
beginning of a revolutionary change for the card
payment system. Using a better method of identifying
the cardholder, combined with the chip's ability
to verify that the card is genuine, will drastically
improve security and significantly reduce most types
of card fraud.
Why is there a
need for Chip and PIN?
Stories have circulated
in the media of unsuspecting cardholders who have
received bills for unexplainable purchases, some
which have run into hundreds and thousands, as a
result of fraudulent misuse of their card details.
This has become
a lucrative business for organised crime gangs who
obtain card details to use at home and abroad. Card
fraud costs banks and retailers millions of pounds
every year.
How will it affect
the Retail and Hospitality Industry?
Most cases of
counterfeit card fraud occur when a card's magnetic
strip details are electronically copied and put
on another card - this is known as skimming and
is often highlighted in the press as the restaurant
scam.
At the end of 2004, to encourage the migration to
chip and pin, the international card schemes will
change the liability for card fraud to sit with
the party, either bank or retailer, who has the
weaker security system. So when there is a fraudulent
transaction and only one party has upgraded their
system, then that party will be protected from liability
for fraud.
However, to encourage
and reward retailer participation, if both parties
have upgraded their systems and there is a fraudulent
transaction, then the retailer will be protected.
Those who do not
adopt this system will run the risk of being targeted
by card criminals and being liable for any fraudulent
transactions as a result.
The main aim of
this scheme is to cut costs relating to fraud significantly
and this includes chargebacks and the cost of administration.
One of the key
benefits is that there should no longer be a need
to store signed copies of receipts in case of a
future query and this is an additional saving in
costs.
What does it cost
and who pays what?
Working together,
banks and retailers will need to upgrade or replace
debit and credit cards, point-of-sale terminals
and cash machines.
In addition to
upgrading systems, banks and retailers will need
to educate and help customers to use PIN rather
than signature, and guide them through the transition
process.
Retailers
who own their systems will be responsible for upgrading
them. The cost-saving benefits of the chip and PIN
system will help off-set the costs of upgrading
their security systems.
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