Chip and Pin Systems

Chip and Pin System

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What you need to know about Chip and Pin

Chip and PIN is a revolutionary new payment system that introduces a more secure way for over 40 million people in the UK to use their credit and debit cards. Chip and PIN will combat the increasing level of plastic card fraud which is currently costing the UK over £500 million a year.

To combat card fraud, two fundamental facts need to be established at the time of transaction - that the card is the genuine item and that the person using it is the true owner. The chip means that it is effectively impossible to counterfeit or copy the card while the PIN makes it harder for a criminal to use a lost or stolen card.

As a business which accepts face-to-face credit or debit card payments from customers, fraud may take place in your outlets without you ever being aware of it. A Europe- wide shift in the liability for card fraud losses on transactions that could have been protected with chip and PIN happened on 1 January 2005. In these cases the liability rests with whichever party - bank or retailer - that hasn't yet upgraded. Consumers are not affected by this change - they continue to be protected from losses by The Banking Code.

If a retailer does not have a chip and PIN acceptance device after January 1, 2005 and the use of such a device could have prevented the fraud from occurring, the retailer may bear the cost of the fraudulent transaction. This will depend upon the terms and conditions between that retailer and its acquiring bank.

This has no impact on the customer, but is a Europe wide shift involving fraud loses on transactions that could have been protected with chip and PIN. In these cases the liability shifts to whichever party hasn't yet upgraded.

Since January 1 2005, if a retailer does not have a chip and PIN acceptance device, and the use of such a device could have prevented the fraud from occurring, the retailer may bear the cost of a fraudulent transaction. This will depend upon the terms and conditions between that retailer and its acquiring bank.

Over 87 per cent of tills in the UK have now upgraded to chip and PIN. It is expected that in time all card-accepting merchants will adopt the chip and PIN system. Those who do not adopt the chip and PIN system are likely to attract card criminals who will target the weakest links.

As well as fighting fraud, chip and PIN has proved to be an efficient, secure and customer-friendly system.

Where the customer is not present at the point-of-sale (i.e. mail order, telephone order and internet transactions) chip and PIN does not affect the current situation. However there are several initiatives at different stages of development, which are outlined below.

• AVS/CSC
• Verified by Visa and MasterCard SecureCode
• The future

Contact your acquiring bank to discuss further options for your business or visit www.cardwatch.org.uk

AVS/CSC

Please be aware that the banking industry has developed Address Verification Service(AVS) and Card Security Code (CSC) to help prevent Cardholder-Not-Present (CNP) fraud:

AVS checks the numeric data in the cardholder's statement address with the card issuer.

CSC provides additional security digits to confirm that the card number provided is a genuine one.

By checking the cardholder's statement address and card security details, AVS/CSC has helped many merchants reduce their CNP fraud and chargebacks.

Verified by Visa and MasterCard SecureCode

Other methods such as Verified by Visa or MasterCard SecureCode can protect you from chargebacks for certain fraudulent Internet transactions.

MasterCard SecureCode and Verified by Visa are authentication services that have been developed by the card schemes to provide a more secure approach to credit and debit card transactions over the Internet.

Cardholders register for the services and can choose a private password for use when shopping online at a participating merchant.

Use of these authentication services by a merchant shifts the liability from the merchant to the card issuer in the event of a chargeback, under any of the following conditions:

• Merchant and acquirer have installed the services, but the cardholder is not enrolled for the service.
• Merchant and cardholder have both enrolled for the service.
• Merchant and acquirer have installed the services but the issuer is not enabled to operate the service.
• All Verified by Visa transactions globally where the cardholder disputes participation.
• All MasterCard SecureCode transactions globally except for US issued cards

As both of these services are based on the 3D Secure protocol, the installation of either service, together with a merchant plug-in, can support both card schemes.

These services provide customers, merchants and banks with greater security for card payments on the Internet. Merchant acceptance in the UK has seen a dramatic growth in the past year and issuer and cardholder adoption is now growing strongly.  The volume of transactions seen through the services has increased tenfold with prominent merchants continuing to join the initiative.

You can register for these services with your merchant acquirer or Payment Services Provider.  For more information contact your acquiring bank or go to:
http://www.visaeurope.com/verified, or http://www.mastercardmerchant.com/securecode

The future

Undoubtedly the use of the internet, telephone and mail order for shopping is a huge success story but it is this success that attracts the fraudsters. As we close avenues for fraudsters to commit crime on the high street with initiatives such as chip and PIN, as expected, they attempt to migrate their activities to other areas such as these.

To protect you the retailer, and of course the customer, and to help drive the use of these channels, APACS is working closely with banks, card schemes and systems vendors to ensure that the person making a ‘card-not-present’ payment is the genuine cardholder.

This is most likely to involve the cardholder inserting their chip and PIN card into a hand-held card reader provided by their bank and enters their PIN. On validating the PIN entered, the reader generates a unique, one-time only passcode, which the cardholder provides to the retailer for authentication by the cardholder’s bank. The card reader uses the security features built into the chip on the card, and is never connected to the internet.

What are the next steps?

APACS is liaising with banks, card schemes, retailers and systems vendors on the system for potential use in both online and telephone shopping scenarios, and is working towards a trial in the latter channel in 2007.

01283 214758

or fill out the Enquiry Form.