Plastic cards go high-tech in bid to stop fraud

All cards with magnetic stripes will be replaced by harder to-clone smartcards, writes Laura Slattery.

From next year, cash-light consumers using credit or debit cards in shops will no longer fumble for a pen to put their autograph on a printed-off receipt.

Instead, cardholders will key in a four-digit Personal Identification Number (PIN) into a counter-top keypad as part of the introduction of new card and point-of-sale technology designed to prevent escalating credit card fraud.

Under chip and PIN programmes being introduced all over Europe, all plastic payment cards with magnetic stripes on the back will be replaced by chip and PIN "smartcards".

These cards are harder to clone and should substantially reduce incidences of counterfeit fraud, otherwise known as "skimming".

It will also curb fraudulent use of lost or stolen cards by eliminating the possibility of signature forgery. Residents of Naas and Newbridge will be the first Irish consumers to notice the change, with the new system scheduled to start in the two Co Kildare towns by July.

The launch will be gradual, says Mr Barry O'Mahony, chip and PIN programme manager for the Irish Payment Services Organisation (IPSO), the body co-ordinating the changeover.

"Not everybody will be using their PIN on the Monday morning. It won't be like a big-bang affair," he says.

Card providers, including MBNA, are already beginning to issue new customers with the chip-enabled cards, although the PIN will not be active yet.

More than three million cards in the Republic need to be changed, while all ATMs will be adapted to include PIN management functions for consumers to change or unlock forgettable PINs.

Meanwhile, retailers must upgrade their electronic payment terminals so that they conform with the EMV platform - the set of technical specifications for the card payments infrastructure designed by the two main card schemes, Visa and Mastercard.

"It is a particular challenge for the larger retailers that own their own integrated checkout systems, because they have to replace their point-of-sale equipment," says Mr O'Mahony.

But most retailers in the Republic use just one or two electronic card readers, which are provided and owned by banks.

"There are 45,000 bank-owned terminals to be migrated to the EMV platform. It's a very simple process for the retailers. The bank will just come in, plug out the old one, plug in the new one and attach a pin pad."

The international drive to eradicate fraud has provided a massive boost to the companies supplying electronic payment terminals, including Irish firm Trintech.

The company is active in northern Europe and the UK, where chip and PIN was piloted in 2003 and where it is estimated more than £1.1 billion sterling (€1.61 billion) will be spent on upgrading point-of-sale equipment. Population size, plus the fact that more than half of the payment terminals in the UK are owned by the retailers themselves, means that it is a much bigger market, according to Mr Eamon Keating, general manager of Trintech's retail division. However, Trintech is in discussions with a number of the larger retailers here who own their systems. Trintech's main EMV-compliant product is called the Smart 5000, a terminal with an increased processor capacity and memory.

"What you can put on a chip is greater, so the cards are now more difficult to authenticate," Mr Keating explains. "It is open source so that all kinds of applications can be added to it later."

Products that could be added include loyalty cards, electronic gift cards, top-up facilities and "stored-value" applications.

The risk that fraudsters will learn to manipulate the new generation of chip-enabled cards remains a concern.

However, experience with chip and PIN cards in France has showed that the cards are not economical to duplicate in volume, Mr Keating says.

"To some extent, because there is a microprocessor on the chips, they are future-proof," adds Mr O'Mahony. Security features can be added over time.

But for the moment, the focus is on making sure there is a critical mass of upgraded cards, terminals and ATMs ready to go at the same time, according to Mr Mike McKay, director of VISION Consulting, which is overseeing the programme for IPSO.

"The technology has been proven. The biggest concern is around the planning and logistics of the whole programme," Mr McKay says.

The national roll-out of chip and PIN will work according to the banks' schedules and should be completed by summer 2005 - any delays and the Republic could wind up with a reputation amongst card fraudsters for being a bit of a soft touch.