As trials of the new payment authorisation procedures get under
way retailers should be planning to upgrade to meet chip-and-Pin
standards, writes Nick Huber.
In May UK banks and retailers are due to begin the trial of a
multibillion-pound fraud prevention programme based on smartcard
technology.
The £1.1bn chip-and-Pin initiative, which will be see consumers
authenticating card purchases with a personal information number
rather than a signature, is due to be trialled in Northampton in
the next three months. The cards, based on a technical standard
from Europay, MasterCard and Visa, should be used nationally by
2005, by which time most of the UK's 110 million credit and debit
cards will be chip-and-Pin enabled.
The project is run by a management organisation set up by the
Association for Payment Clearing Services (Apacs) and the British
Retail Consortium. Supporters of the scheme, which has been more
than 10 years in development, claim that it could more than halve
credit and debit card fraud, which rose by 30% to £411m in
2001.
"It is the biggest change to how we make payments in the UK
probably since decimalisation," said Sandra Quinn, director of
corporate communications at Apacs.
Retailers will have to upgrade their point of sale terminals and
ensure that their back-office systems are integrated with the new
technology. They cannot afford to ignore it: firms that do not
accept payments with a Pin authentication by 2005 will be liable
for all fraudulent transactions.
Although there is broad support for the chip-and-Pin project within
industry, the time it has taken to agree the parameters of the
project highlights the tension between the industry sectors.
Retailers have raised concerns about the potential for lost
business due to technical glitches when the system hits the shops,
as well as the ability of mid-sized retailers to prepare for
it.
Apacs pointed out that a similar technology has been in use in
France for more than 10 years. "We have gone through pretesting the
cards, and standards exist," said Quinn. "We recognise that we
cannot do it without retailers - and they cannot do it without
us."
The banks are the obvious winners if fraud levels are cut as
drastically as predicted, but retailers' IT departments will
benefit too. For instance, transaction information on the microchip
embedded in debit and credit cards can be used to build up a more
detailed customer profile.
Large IT projects have a tendency to hit problems, of course,
whether keeping to budget or delivering on time. On the plus side
both the banking and retail industries have traditionally been
heavy investors in IT and are no strangers to large technology
projects.
Apacs is keeping the Home Office informed about the chip-and-Pin
project, and is even passing on a few pointers - the Home Office is
considering using smartcards and biometric data to introduce a
voluntary entitlement card scheme.
"We are working with the Passport Agency and Home Office to
identify best practice about how people identify themselves," said
Quinn. "We are talking to the government about the lessons it can
learn from our chip-and-Pin project for its possible entitlement
card. If it wants to do it there is no point reinventing the
wheel."
But aside from the chip-and-Pin project the banks appear less keen
to work together on new payment technologies. Plans for an
electronic bill payment and presentation system and a same-day
online payment service for small to medium-sized businesses were
sidelined more than two years ago.
At the time Apacs said the projects had been relegated in
importance because banks were focusing their resources in meeting
improvements in customer service, like making it easier for
customers to change banks, called for in the Cruickshank review
into the UK banking industry.
Banks also said there was insufficient consumer demand for the
system, although Apacs regularly reviews this and other payment
issues. Even if banks do judge that the time is right to introduce
these services it would take about two years to design, test and
implement the technology.
Clearly the chip-and-Pin initiative will be the number one priority
for banks over the next few years. All eyes will be on how the
technology performs in the mass market when the trial begins. Any
problems with the project are unlikely to remain hidden for
long.
Apacs payment projects
Chip-and-Pin
A £1.1bn initiative using smartcard technology to reduce fraud
for debit and credit cards. All cards will be fitted with a
microchip. Customers prove their identity by keying in a four-digit
personal identification number (Pin) at a checkout terminal to
prove their identity. Technology due to be trialled in Northampton
soon and to be rolled out nationally by 2005. Aims to more than
halve card fraud.
Electronic bill payment and presentation and same day
payment systems
No firms plans to introduce them, due to insufficient public
demand, although not ruled out.
Chip and Pin readers to secure e-payment >>