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Chip and Pin System to Fight FraudRecent news has foretold of a change in the credit card world. The industry may change from the signature based magnetic strip system to something else entirely. The Australian consumers are more aware of this than anyone else, despite the effects that will be felt globally. At the moment in the UK and Europe the signature card is almost completely gone. The reason for this is the fraudsters who have managed to increase credit card theft and identity theft in the last few years. The system is going to be replaced with EMV chip technology that is supposed to be more secure. It is better known as the chip and pin system. EMV has created technical specifications that allow for interaction between chip cards and the terminals so that there is interoperability. MasterCard and Visa have both been a part of the new system. James Tuner is an advisor for IBRS. He believes that the system allows for a strong authentication because you have the chip and pin that needs to be given at the time of a purchase. When you look at this whole issue from a distance it seems like the chip and pin system is very similar to the magnetic strip storing all information regarding the credit card account. However there is at least one main difference in that the data stored is on a microchip rather than an easy to read strip. It is supposed to make it more difficult to fraud the owner of the card. The chip is designed to make it more difficult to counterfeit the information as well as the card itself. The chip does have secret personal information, but it also has a cryptography key that is only shared with the chip and the bank. So if you copy the chip you are still not able to get the information. The chip is designed to have a failsafe so that the card cannot be copied perfectly by any fraudster. In other words the information is designed to be useless to anyone trying to intercept the information via a credit card machine. Peter Roeleven is the manager of Working Capital Services Transaction Products through National Australia Bank. He has just announced that the product chip and pin cards will be hitting the market very soon. It is almost impossible for anyone to steal the information from the cards, which makes the new cards the best thing on the market at the moment. Roeleven is not going to say that it is impossible to steal the information because there is always a way to break codes or hack into something and get the information. It is just more difficult than the antiquated system of magnetic strips. At the moment the chip and pin cards are in 45 countries. In the UK alone there have been 100 million cards issued. Visa Asia and Europe is the most advanced region for the EMV system at the moment; as of 2006 there were 30 million Visa EMV cards issued. Credit Card fraud in the UK and Europe has seen a reduction in the last few months in regions where the cards are most prevalent. This means that, for the consumers using the chip and pin cards, for their transactions they have been safer to use that than any other in their possession. Many of the financial institutions have been worried about the rising fraud with card counterfeiting. This worry has made them seek some alternative method to keep their consumers safe. With the credit card fraud being linked to the organised crime, black market, and other counterfeit options it is a wonder that they are so worried. China has one of the largest industries for the aforementioned crimes, however they do not have near the credit card fraud issues of other countries because they have the chip and pin system. The magnetic strips have been easy to infiltrate and then reproduce. This is of course not the only concern were credit card fraud has been an issue. The fact that lost or stolen cards were also being used for purchases has added to the increase of fraud. It has been simple to steal a purse or wallet and then go on a spending spree because the cards were not being verified properly. Instead of asking to see ID the merchants just took the cards. The internet made this even easier with no ID required just the ability to purchase something when you have a credit card number. APACs has seen a loss of 423 million pounds in past years, but in the recent months they have seen a decline in this amount to 80 million pounds being stolen. The facts are pretty clear that a new system was needed to foil the fraudsters. Financial News March 2008 |
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