Banks PIN hopes on chips

23-03-2007

by Ciara O'Brien

With chip and PIN technology now mandatory for use with credit and debit cards, what are the implications for businesses?

Money has come a long way since the days of exchanging seashells and handing over salt for goods. These days, the trend toward electronic payments is commonplace, with the use of credit and debit cards a regular occurrence.

These modern payment methods have also seen changes in recent years.

Introduced in 2004, chip and PIN transactions have steadily become widespread in Irish society. Instead of relying solely on an inked signature, chip and PIN-enabled cards require customers to enter a Personal Identification Number for their purchase.

Up until recently, retailers could bypass the PIN request if customers preferred to sign for a transaction, or didn't know their PIN. However, from 17 March this choice is no more, with all retailers expected to ask for PINs to process payments.

In reality, it probably won't mean too much of a change for businesses. Some already refuse to bypass the PIN, although this may be less commonplace in small, local outlets where clients are personally known.

And although consumers are being warned they need to know their PIN from now on, the truth is that transactions can still be accepted if they don't remember their numbers.

"It's not a Big Bang - it's going to take place on a phased approach," explains Torlach Denihan, director of IBEC's Retail Ireland division. "The financial institutions are rolling it out at their pace."

However the biggest change is that the decision no longer lies with the retailer. Although they could in theory still accept a signature, Una Dillon, head of card services at the Irish Payment Services Organisation (IPSO), explains that a bank may decline transaction authorisation when it sees a PIN request has been bypassed.

Chip and PIN was introduced in a bid to stamp out credit card fraud, but there are concerns the new technology simply pushes the burden of proof onto the consumer where the PIN has been used for a fraudulent transaction.

However, it seems to be having an effect. Figures for 2005 and 2006 already indicate a reduction in card fraud. Had the technology not been introduced, IPSO estimated fraud losses of up to EUR16.5 million in 2005. Instead, the figures totalled EUR12.5 million, a 24 percent drop. And fraud figures for 2006 are already down on 2005.

This trend has also been reflected in Northern Ireland, where fraud figures dipped 12 percent last year.

"If we use tech properly it will work even better, and that's our aim," says Dillon.

Nonetheless, although chip and PIN may have reduced the banks' losses, retailers, it seems, have drawn the short straw.

"It's been an overhead because people have had to invest in staff training and have had to modify their IT systems," says Denihan.

In general though, both retailers and consumers have taken to the new technology. "For the majority of transactions, people do provide PINs," says Denihan. "There is a minority of them where they're not."

Dillon claims only 6 percent of card holders are choosing to sign for their transactions, a figure the payments organisation is expecting to slump further by next week.

However, Denihan points out that there is one complicating factor for chip and PIN: not all cards issued by Irish financial institutions are chip-enabled cards. With more than 4 million credit and debit cards in circulation in Ireland, only about 4 percent are not chip and pin enabled. So how will the new rules affect these customers?

Answer: these swipe cards should still be accepted by retailers until financial institutions get around to replacing customers' older cards with new ones.

Dillon also highlights a new trend she's observed recently -- one that is causing IPSO some concern: "We seem to have a trend of retailers turning people away when they don't provide a chip and PIN card," she says. Considering the number of tourists expected to descend on Dublin in the coming weeks and months, it is not a wise move on the part of the retailer as not all countries have adopted chip and PIN technology.

Foreign visitors should still be able to use the swipe cards in Irish stores, with retailers allowed to use the traditional swipe-and-sign method. "They're turning away business [unnecessarily]," Dillon added.

Chip and PIN is only the tip of the iceberg. Already new payment methods are being investigated that could take a lot of cash and cheques out of circulation, including mobile and contactless payments.

Paying through your mobile phone is already in use for parking meters, for example, while new contactless cash cards are waved before a scanner, and could be used for small 'trust' transactions up to a certain limit, for example EUR15.

"It's not another new card, it's a function on existing cards you have," explains Dillon. "It will be a card you can use if you want to buy newspapers etc, you just swipe and go. There is no need to transact with someone."

This all fits in with recent predictions from Visa Europe's chief executive Peter Ayliffe that we could be living in a cashless society by 2012 as plastic becomes more convenient.

Regardless of how chip and PIN progresses in Ireland, it seems there is no turning back from new technology. Salt and seashells are no longer accepted.