Chip and pin was introduced on a test basis in the UK in 2003, with the PIN (personal identification number) replacing signature authorisation.
In 2006, chip and pin was rolled out across the nation and use became a requirement for shops.
What is chip and pin?
Chip and PIN refers to the technology used in debit and credit cards to process payments or withdrawals from cash machines.
The chip refers to the square shaped microchip found within the card, which generates and stores unique information regarding each transaction.
The microchip is embedded with details on the cardholder’s associated account, such as the account number and expiry date.
The chip is known as an EMV, coined by the three payment giants who first agreed upon a common standard – Europey, MasterCard and Visa.
PIN is an acronym for personal identification number – the four digit code used to authorise use of the card.
Prior to the introduction of chip and pin, which had actually been widespread in France some ten years before its arrival in the UK, transactions involved the use of a magnetic stripe or mechanical imprint.
Payments were authorised by signature, which would be compared to the impression on the reverse of the card.
Not only was this a timely process, it offered limited security and was susceptible to fraud.
Initially featuring in banks for the purpose of cash withdrawals and then larger stores for point of sale purchases, the chip and pin has become essential to businesses of all trades and size.
The benefits of chip and pin
As aforementioned, the alternative authorisation of a credit or debit card transaction is, like a cheque payment, through a signature.
The timely process, and the requirement to compare the stamps on the card and receipt, is infinitely sped up with the pin process.
The signature authorisation is also insecure should a customer’s card be lost or stolen, with the autograph easily forged upon payment.
The requirement to check signatures during point of sale purchases could also fall victim to lax eyes.
The chip and pin method therefore offers a major step toward reducing fraud, with the UK standing at a card fraud rate of .14% per transaction value prior to its introduction, compared to the likes of .5% in the United States.
In 2005, despite the nation not yet fully chip and pin integrated, losses due to the fraudulent use of credit and debit cards fell by £65 million.
Lost or stolen card fraud has declined every year since 2004, descending 61% between 2004 and 2010.
Similarly, counterfeit card fraud has also fell, with 13% of all card fraud being attributed to this in 2010 compared to 25% in 2004.
Due to the microchip within chip and pin cards, they are both difficult and expensive to counterfeit, as opposed to magnetic strip technology where information could be pulled easily by criminals via scanners.
The transaction is also far more sophisticated, generating a unique number during each transaction as the card reader and payment network sync.
The number is exclusive to each transaction, meaning it is significantly harder for fraudsters to counterfeit.
And, if any data breaches were to occur, the pin system also ensures an additional layer of security.
While chip and pin succeeded in its task to combat fraud, contactless payments are now becoming increasingly popular, notably during the Covid-19 pandemic.
However, the contactless method, while undeniably quick, offers an easy target for fraudsters, especially with an expected limit rise to £100.