UK debit and credit cards - Why chip and pin?

By CreditCards.com

Why chip and PIN?
A new way of using credit and debit cards was introduced to the UK on 14 February 2006. Instead of getting you to sign for your credit card purchases, almost every retailer in this country now requires you to enter your four-digit PIN (Personal Identification Number), just as you do at a cash machine. Chip and PIN is part of an international initiative to combat credit card fraud; the UK was one of the first countries to roll it out. A similar PIN system introduced in France more than 10 years ago has seen an 80 percent reduction in fraud since.

Why is chip and PIN more secure?
With each transaction, a credit or debit card must perform two security tasks: proving that the card is genuine, and proving that the person using the card is the real cardholder. The information and microprocessors on the chip protect each card against counterfeiting, whilst the requirement to give the correct PIN guards against misuse of cards that have been lost or stolen. Previously, these two tasks were undertaken by the magnetic strip on the back of the card, and the signature below it. You'll still find these on your credit cards, for situations where the chip and PIN system isn't available, but they are now very much a backup. More than 99.8 percent of all UK card transactions are verified by PIN and all cash machines can take cards with microchips.

How the chip works
A small microchip embedded in your card carries secure information and complex processing capabilities. On the front left-hand side you can see it as a silver- or gold-coloured square. The chip holds the same data as the magnetic stripe (that is, the card's number and expiry date, the cardholder's name) but also has a range of high-tech security measures. It holds information more securely than the old magnetic strips and also plays an active role in each transaction's authorisation. The chip provides the interaction and processing that identifies genuine cards and makes counterfeiting more complex and expensive. For instance, it counters card "skimming," a fraud technique in which scammers use a card reader to copy data from the magnetic strip. This was previously a hugely successful approach, costing card issuers and retailers more than £100m a year. Whilst this method can still be used to create fraudulent cards, they will not have a working chip, and are therefore rejected by most cashpoints and shop tills. The chip also makes it possible for cardholders to identify themselves at a point of sale, using their PINs.

Why use a PIN?
Many other methods of verifying the cardholder were considered, including identification photographs on cards and biometric solutions such as fingerprints, iris scanning and voice recognition. However, each of these had their problems. Biometrics are not currently sufficiently reliable or cost effective for the huge volume of transactions taking place every day in the UK. ID photos would also have been costly for consumers and would slow transactions as salespeople eyeballed each buyer's photograph. Using a PIN cost less and shifted responsibility for identifying the owner of the card. Cardholders -- already familiar with PINs from using cash machines -- didn't object.

Other advantages
Chip and PIN is considered to let more people with disabilities use credit and debit cards than before. Recent NOP research showed that the majority of disabled cardholders have welcomed chip and PIN and find it easy to use, with 82 percent approving and 70 percent preferring it to using a signature.

Are there any disadvantages?
There have been some concerns that credit card criminals may find a way to capture card and PIN data using specialised equipment, such as compromised PIN terminals. APACS -- the UK payment association -- disagrees with these worries, saying the technology is extremely robust. It is certainly more important than ever to keep your PIN secure, as this is the only way your card issuer or bank can ensure that you are the real cardholder.

Protect your PIN
Never tell anyone your PIN -- neither your bank nor the police will ever ask for it. • Never write down your PIN, and definitely don't keep any note of it with your card. • Only give your card details over the phone when you have made the call and you're satisfied that the recipient is secure. • Remember to shield your PIN when entering it into a terminal in a shop or restaurant. • If you are selling an old computer, be certain to delete all personal details, such as your PINs, and bank account or credit card numbers.

Will I ever have to sign another receipt?
There are a number of important exceptions in which cardholders can continue to sign: • Cardholders with an old-style card, waiting for an upgrade. • Cardholders from overseas with an old-style card. • Disabled cardholders with a chip and signature card. And for cardholders who have a chip and PIN card, you will still occasionally be required to sign instead if the retailer you are visiting isn't able to process a PIN transaction.

Published: 8 July 2007