Mid-sized retailers have been warned to begin implementing chip and Pin compliant electronic point-of-sale systems or risk joining a new “retail underclass”.
The warning, from analyst firm Butler Group, came as the first chip and Pin “barometer” report of 2004 revealed that 100,000 UK businesses are accepting Pin authentication on card payments and that one in six cardholders has a new chip card.
Chip and Pin, the £1.1bn initiative which aims to cut card fraud by 60%, is due to be rolled out nationwide by the end of 2004. From 1 January 2005, any retailer without chip and Pin-compliant point of sale systems will be liable for the cost of fraudulent card transactions, instead of the banks.
The top 25 retailers, which can afford system upgrades and stand to lose the most from the liability change, and the smallest retailers, which rent their point-of-sale terminals direct from the banks, are all expected to meet the deadline.
However, many of the UK's 10,000 tier-two retailers feel they cannot afford or justify the replacement of existing systems ahead of their planned schedule.
This leaves every transaction exposed to risk, warned Andy Kellett, senior research analyst at Butler Group, in the group’s OpinionWire report.
“Because the high profile suppliers and the small targets at the bottom of the market have been removed from the easy reach of the common fraudster, there will be a natural gravitation to pushing fraudulent transactions towards those that continue to run older, exposed systems,” he said.
“Chip and Pin deployment is likely to bring with it a new retail underclass – for the sake of your organisation’s future wealth and sustainability, this is a group you should not consider joining.”
However, retailers face a race to meet the deadline as there are supply chain problems for both chip and Pin enabled terminals and standard point-of-sale systems, warned Lehane Kellett, head of technical consulting at retail IT consultancy PMC
“Retailers are hoping the price is going to go down and that supply problems are going to go away – this is not going to happen,” he said.
The Chip and Pin Programme Management Organisation, set up by the British Retail Consortium and UK payments body Apacs to oversee the rollout of the technology, has been criticised for ignoring tier-two retailers.
However, Sandra Quinn, director of corporate communication for Apacs, said, “We have engaged with as many (tier-two retailers) as possible, giving them the information they need to put the business case together. The ones we are concerned about are those that have not even talked about it.”