Chip Cards (Smart Cards)

What is CHIP and PIN?   (CHIP Cards & PIN numbers)

What is a CHIP? It's a small computer chip that can be seen on the front of a modern debit or credit card - sometimes known as a SMART card

What is a PIN number? A PIN number is your Personal Identification Number. It is the secret code number you choose for your card that enables you to access your money or perform banking transactions through the ATM as well as make purchases without signing a sales receipt at merchants that have PIN pads. Never share your PIN with anyone and never write it down.

So what's this CHIP & PIN?

• Visa, MasterCard and Europay agreed to define an international payment standard known as EMV to ensure payment cards can be used everywhere they are used today
• As far back as 1998, Visa laid out a clear framework and a seven-year timetable for the European migration to EMV chip
• Visa EU has provided a £100 million chip migration fund as part of a package of support for banks, retailers and vendors to help them implement chip and PIN
• Of the 120 million payment cards in issue in the UK, over 58 percent are Visa cards
• The majority of Visa cards will be chip cards with PIN verification by 2005

Credit Card Industry facts  

• A chip and PIN trial started in Spring 2003, in Northampton, for three months, with participating card issuers and retailers
• The industry is spending over £1 billion to migrate to chip and PIN but it is anticipated that the new cards will repay the investment
• The European Commission estimates that chip and PIN will save banks and retailers over £412 million annually
• Fraud costs the UK more than £1m a day
• A fraudulent transaction takes place every 20 seconds
• Without action card fraud is projected to rise to £800m a year by 2005

Consumer facts (according to Visa research)

• 78% of cardholders think the introduction of PIN is a positive step
• 69% of cardholders value the added security that the introduction of PIN at the point of sale will bring
• 52% of people think that typing in a PIN when using a card to pay for goods will help reduce fraud

Chip Credit & Debit Cards

• By the end of 2004 the majority of credit and debit cards in the UK and most of Europe will be chip cards. These will contain a small computer chip that can securely store data to identify both the card and the cardholder.
• The chip can hold the card’s data so securely that it cannot feasibly be copied or altered.
• By 2005 the majority of cardholders paying with a credit or debit card will enter a PIN into a card terminal to verify their identity, rather than by signing a receipt.
• A transaction using a chip card with a PIN will be very simple. Cardholders will be familiar with the process, which requires them to input a 4 digit PIN when paying for goods.

 Why is it happening?

• Chip and PIN is the solution to the rising cost of counterfeit, lost and stolen and intercepted card fraud in the UK.
• The chip prevents the card from being counterfeited and the PIN uniquely identifies the owner of the card and prevents a lost or stolen card being used by someone else. If a card is reported lost or stolen, the issuing bank will ‘lock’ the chip on the card.
• In time, chip and PIN will also lead to faster transaction times and shorter queues, due to removing the need to sign and verify the receipt.
• A more comprehensive audit trail of the card transaction is provided, allowing cardholders, merchants and banks to better determine whether transactions were genuine or fraudulent.

 Who is involved?

• The entire banking industry is involved including Visa and APACS (Association of Payments and Clearing Systems) and their member banks, the BRC (British Retail Consortium), all retailers and cardholders.
• Visa, MasterCard and Europay agreed to define an international payment standard known as EMV to ensure payment cards can be used globally.

When is it coming?

• Cardholders will be sent a new chip card and PIN by their bank either when their card is ready for renewal or by the end of 2004.
• For the foreseeable future, all Visa chip cards will continue to carry a magnetic stripe, so there’s no need to worry - even if your card has a chip on it but the retailer does not have a chip terminal, your card will still be accepted using the magnetic stripe just as it has been previously. Participants in the Northampton trial will receive cards over the coming months in time for the start of the trial.

Northampton Trial  

• There will be a trial to make sure chip and PIN is a success when it’s rolled out nationally.
• The technology has already been successfully tested, so the trial will make sure that people receive the right communications and understand what to do with their cards at the point of sale.
• New cards will be issued to the many participating Northampton cardholders by their banks and they will be issued with a PIN. They will receive details from their card issuer about what to do.
• Many Northampton retailers including some very well known high street names (Dixons, ESSO, Focus, Marks & Spencer, Sainsbury’s, Spar, Tesco, Texaco, Total etc) have committed to installing the technology capable of accepting PIN authorisation at the point of sale.

 The Visa Cardholder Experience  

• Cardholders, apart from those in Northampton, don’t need to do anything yet.
• By 2004 the majority of payment cards will carry a chip and cardholders will each be issued with a unique PIN from their issuing bank.
• From 2004 Visa cardholders will be able to change their issued PIN at most UK ATMs
• Cardholders will receive regular communications both directly from their bank and more widely from the industry as a whole to explain the change and ensure they know what to do.
• Essentially, PIN will replace a signature at point of sale .
• Typically, the card is inserted into the chip terminal. The cardholder then checks the amount on the terminal is correct and discretely enters their PIN. The card remains in the terminal for the duration of the transaction, which will be verified and completed in seconds. The card is then removed and the sales receipt given to the cardholder.

How do we know it will work?  

• France introduced a domestic chip-based PIN system in 1993 and during the first full year in which every French payment card carried a chip, total losses halved and domestic counterfeit fell by 78%.
• By 1996 counterfeit had effectively vanished (according to the French national bank card association, Cartes Bancaires) and by 1998, banks were saving the equivalent of 0.1% of sales volume on fraud alone.
• France has committed to upgrading its current system to be compatible with the EMV specifications by 2005.

What is EMV?

EMV is the industry abbreviation for the consortium of three companies who created a joint working group in 1994 (Europay International, MasterCard International, Visa International) jointly sponsoring the global standard for electronic financial transactions. It also refers to the technical specifications produced by that consortium and adopted by all three companies designed to ensure the global interoperability of chip cards, chip terminals, financial messages and related services.