We stand at the checkout or at an ATM, insert our cards into a slot and key in our four digit Chip & PIN numbers to withdraw funds or pay for goods or services.
The chip is embedded into our card and the PIN is our Personal Identification Number and both have to be used in combination. The chip holds the same personal data as the magnetic stripe – customer name, card number, expiry date – but it is secured using advanced encryption.
During the course of the early 1990s and early 21st century, most of Western Europe, Australia, and New Zealand began to adopt Chip & PIN smartcards (the US has yet to adopt it, although Canada has begun the migration). The system replaced the old cards with magnetic stripes down the sides, which had to be validated with a customer signature. These gave rise to security concerns including forged signatures and the ability for employees to swipe transactions through fraudulently when they took customers’ cards out of sight. Chip & PIN technology quickly became an established standard for safety and security for card transactions, providing enhanced protection against fraud from lost, stolen, and counterfeit cards. When France introduced the system around 1993 it saw card fraud drop by 80 percent.
With the introduction of Chip & PIN, responsibility for paying the cost of fraudulent transactions passed from the issuing bank to the retailers themselves, thus giving retailers an incentive to upgrade to the new technology. These days, banks have to prove that the cardholder is at fault if fraud does take place, rather than assuming that it is the customer’s fault.
The advent of Chip & PIN technology coincided with the advances in wireless data communication, enabling the card reader system to be portable. For example, in restaurants, the card need never leave the customer’s sight.
Contribution to Retail History
A key development in the move to a cashless society, Chip & PIN made customer transactions and back office accounting and reconciliation much easier for retailers. In reducing fraud (theft of cash or from staff ‘skimming’ information from customers’ cards) the system has also lowered retailers’ costs. The ease of use of Chip & PIN and the fact that there is no ‘minimum’ spend per transaction has encouraged customers to use them for even small impulse purchases that they might otherwise not have made.