Chip cards will defeat fraud

It has taken ten years, but chip or smart cards are coming into their own within the banking and retail sector, to provide more secure, versatile, convenient and widespread cashless payment opportunities.

Says Europay, MasterCard, Visa (EMV) specialist at Visa Central and Eastern Europe Middle East and Africa (CEMEA), Cedric Edwards: "In the effort to combat counterfeit payment card fraud, the chip card, which will replace magnetic strip technology, will ensure that cashless payments are made much safer and more secure."

Magnetic strips on credit cards are easy to clone, and are used by fraudsters to make illegal transactions in other people's names. It is also cheap to do so, using devices that Edwards says can cost as little as US$2,251. Return on investment is thus immediate for fraudsters when cloning a corporate credit card, for instance.

"The chip card is much more difficult to clone, because the data is encrypted, and safety measures of encryption and decryption are incorporated on both the card and the terminal reader side, through public key infrastructure (PKI)," he says.

The chip card is also authenticated by a personal identification (PIN) number, which reduces the risk of the card being used by persons other than the cardholder. However, says Edwards: "I see us moving away from PIN in the next few years, and incorporating biometrics, such as fingerprint identification, for an even more secure environment."

According to Edwards the French reduced card fraud by 98 percent, after deploying chip card technology.

"Another major advantage of the chip card is the ability to load multiple applications on the chip, which means that it can be used for more than just payments," says Edwards. This allows for applications such as risk management and customized software, like secure e-commerce, loyalty points, insurance policies and identification data - photo and fingerprint - to be loaded on the card.

Edwards' view is that the development of the technology (chip) is basically complete, and that, in terms of implementation and roll-out in South Africa (SA) and globally, "the focus is now on sorting out the standards issues from a global perspective, to ensure that people can use their credit cards safely, anywhere in the world".

In SA, says Edwards, emphasis should now be on banks changing their back-end systems, and issuing chip cards, as well as retailers integrating terminals at shops.

"The real battle will start with issuing cards," he says. As the first batch of issued cards will incorporate both magnetic strip as well as chip technology, it will still present fraud opportunities. But, he says, that through EMV standards and agreements, the risk will shift from banks to retailers and card holders. "In EMEA, till 2006, if fraud is committed because terminals have not been upgraded, retailers will have to bear the fraud cost. It is difficult to deploy, and it takes time, but we need to start somewhere. The benefits will be worth it in the long run," he concludes.

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