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plastic card fraud losses will dive High rates of card crime will fall
Plastic card fraud is serious business in the UK, but high rates of card crime will fall when banks and retailers realise their shared vision of using 'smart' chip cards with PINs (personal identification numbers) by 2004.
To stop card fraud, two fundamental things need to be ensured - that the card is the genuine item and that the person using it is the true owner. In the last year the UK banking industry, in partnership with its retail colleagues, has moved a giant step closer to meeting both these requirements by 2004.
Fraud is a grave issue faced by the UK's retail and plastic card industries, with losses over the last year rising more than 30 per cent to £350 million. This rise is due to high levels of organised card crime as well as the increased usage of payment cards.
The highly-secure chip cards now being introduced in the UK (already there are 20 million) meet the first part of the fraud prevention fundamentals by ensuring that a card is not a counterfeit. This is because the microchip holds information very securely so it is not feasible to copy or alter the data contained in it.
Chip cards offer an excellent platform for tackling the second requirement for improving fraud prevention ; the reliable identification of the cardholder.
PIN expected by 2004
This signals the beginning of the most revolutionary change ever for the UK card payment system. Using a better method of identifying the cardholder combined with the chip's ability to verify that a card is authentic would drastically improve security and significantly reduce most types of fraud.
The 31 banks and building societies that are members of APACS, and issue 98 per cent of the UK's debit and credit cards, agreed unanimously to migrate to the use of chip cards with PIN. They are now working closely with their colleagues in the retail community to help them make the same commitment.
To enable the final decision to begin implementation, individual banks are engaged in complex one-to-one discussions with their retailer customers to settle a number of commercial issues. Significant progress is being made.
Working together, banks and retailers will need to upgrade or replace over 100 million debit and credit cards, 750,000 point of sale terminals and 35,000 cash machines.
In addition to upgrading systems, banks and retailers will need to help their 40 million shared customers to use PIN rather than signature, and guide them through the transition process.
The UK is one of many countries that recognise the EMV specification and significantly is the first to mass-issue cards that meet the requirement. Already there are 20 million chip cards in issue in the UK and by the end of next year, an estimated 55 million of the UK's forecasted 108 million credit, debit and charge cards will contain chips.
France, which has used a domestic chip-based PIN system for several years, has committed to upgrading systems by mid-2003 to be compatible with the EMV specifications.
The magnetic stripe will remain on cards in parallel with chips for a number of years to ensure that cards with the old and the new technologies can be used around the world. Ultimately, when all countries have adopted EMV-compliant chip cards and terminals, there will be an internationally interoperable system. At that point, magnetic stripes will no longer be included on cards.
Chip card security
In the exceptional case of a criminal getting access to the chip itself, the next layer of security is even more protective, to break into the chip's data would require a huge amount of computer power, time and very specialist knowledge and skill.
Chip security systems will continue to be reviewed and updated regularly, and the UK card industry maintains a multi-layered approach to security so that it is not reliant on any single system.
Extra benefits of chip
With the increase in security that chip cards bring, the potential exists for retailers to expand the use of unattended terminals in petrol stations, car parks and self-scanning at supermarkets.
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