Fighting fraud with chip & PIN

Local adoption

Australian card issuers have tentatively begun the process of transitioning to chip cards, despite low fraud rates. Perhaps it’s the global market pressure driving the trend or the fear that fraudsters will turn their attention to Australia since Europe and Asia have tightened their belts.

According to Visa APAC, Australia joined the one million-plus chip card club at the end of 2006, alongside Japan, Korea, Taiwan, Malaysia, Hong Kong and Thailand.

The Commonwealth Bank of Australia became the fourth bank, alongside ANZ, Westpac and Macquarie, to commence the phasing in of EMV chip cards by September 2007.

As mentioned earlier, NAB has signalled that its roll-out will commence soon, having already released chip-capable terminals to its customers. NAB is not alone in this case as many terminals from selected financial institutions in Australia have been upgraded to accept chip, much to the relief of northern hemisphere holiday makers.

“Since 2003, any new terminal that has gone into the market has had to be chipped,” said Woodward, insisting chip cards will be commonplace in Australia by the end of the decade.

“I have to say that if we have a look at adoption in Australia, increasingly at various outlets the terminals can actually deal with both smart cards and the regular magnetic devices,” said Leon Oelofse, payment sales executive at Unisys.

“[It is] pressure from the people who are all smart card-enabled saying they all want that level of protection; and an increasing number of people no longer feel comfortable handing their card over with the signature as the only form of authorisation.”

However, the local roll-out has been relatively slow. At the moment there is no set timetable for the shift to chip in Australia. According to Roeleven, when and if a timetable is set there will be variations depending on the merchant and the motivation, he predicted.

The interesting issue for Australia and other markets is that not all the terminals are owned by banks, explained Roeleven.

“So you’ll find major retailers will own their own terminals and because they own their own terminals they have to make the investment in software and infrastructure,” he said.

In addition, every shop around Australia would need to change their terminal. Not only is there an explicit cost in this, but there is also the issue of logistics, as well as the number of terminals required, added Turner.

Interoperability is also a factor, according to Hamilton, as each new issuer comes on stream with its chip program, it needs to make sure those cards are going to work in every acquirer’s terminal. That requires interoperability testing and [APCA] can facilitate the industry process so it doesn’t waste people’s time and effort.

“There are still a lot of smaller issuers out there who haven’t come to grips with the chip issue yet; some acquirers are well skilled up and they’ve got terminals out there that are chip capable, and others don’t. So it comes to a co-ordination issue and managing the process,” said Hamilton.

A similar process took place in the UK, claimed Carl Clump, CEO of Retail Decisions – a UK-based payment card issuer specialing in prevention and payment processing. Banks in the UK had the intention of introducing chip and PIN in 2001.

“It actually went live in 2005 and the reason for that is there is an awful lot of discussion which needs to be held between retailers and the banking community,” said Clump.

From Visa’s point of view, Woodward said: “There are 12 million Visa cards in Australia so it takes a while to swap them over. But you do it progressively, you don’t do it in one hit. So it will take some time.”

Benefits

Australia is at a disadvantage not to be chip and PIN, explained Roeleven. “A lot of [foreign] customers are so used to chip and PIN that the magnetic strip and the signature base is something foreign to them.

“You can imagine when a person from the UK travels to Australia, they’re used to chip and PIN, so from our perspective it made sense to enable our merchants to accept chip and PIN cards as a way to facilitate them to service these customers.”

Further benefits include peace of mind in the instance of stolen or lost cards – an unfortunate circumstance that has forever been a security fear, and often a major long-term annoyance if the card is unlawfully used. But the advent of chip and PIN has made stealing a credit card no more than a waste of time.