Following a successful three-month trial in 2003, chip & PIN credit and debit cards have been flooding through consumers’ letterboxes, with 94 million such cards now in circulation in the UK. But how does chip & PIN affect your business?
By the end of 2005 the new chip & PIN system currently being rolled out throughout the country will govern almost all credit and debit card transactions. The new system requires a customer paying by debit or credit card to verify a transaction by typing a four-digit PIN number into a keypad, rather than signing a receipt. This more secure payment system is already well established in Australia, New Zealand and in France, where after ten years it has reduced card fraud by a massive 80%.
But will it change the spending habits of the UK’s carefree consumers and produce either positive or negative knock-on effects for the UK’s retailers? Faced with the need to memorise four-digit PIN numbers, people have a choice. Ideally, they should have a different number for each card. However, in these days of bulging credit card holders, the likelihood is that many will go for the less challenging option of one number across the board - a highly insecure approach.
There is a third possibility, however, where consumers will opt for the safety of individual PIN numbers, but limit or reduce the number of cards they keep. This could potentially lead to a slow down in the use of credit and a subsequent reduction in escalating levels of personal debt, which would be a positive, if unforeseen, outcome of the new system’s introduction. Although positive for the individual consumer, retailers will inevitably lose out on sales.
At the opposite end of the scale, adding PINs to credit cards undoubtedly opens the door to wide-scale use of this additional means of withdrawing cash from ATMs. This is a hugely expensive way of withdrawing money and full of hidden costs. With personal bankruptcy levels at record highs (over 10,000 individuals suffer this indignity each quarter) the last thing the economy needs is anything else to encourage higher levels of personal debt.
Should consumers choose to limit or reduce their card use, store cards could prove to be primary casualties, especially now that many of them, including those from M&S and John Lewis, have been converted into full credit cards and are largely indistinguishable from the non-affinity brands such as MasterCard and VISA.
Other issues should also be considered. Customers will want to feel confident that their PINs will not be ‘stolen’ by spying fraudsters at the pay till, so checkout and pay desk designs may need to be updated at stores’ own cost. Posing a greater and more damaging threat to retailers, the international card schemes VISA and MasterCard have each mandated that the liability for fraudulent transactions at the point of sale will shift to the non-chip & PIN enabled party, where fraud could have been prevented by PIN.
Retailers also have to consider accessibility issues for disabled customers. However, the introduction of chip & PIN represents a substantial improvement for a significant proportion of these customers, particularly those suffering from problems associated with mobility, manual dexterity, use of hands, physical co-ordination and sight. For example, the difficulties of using cheques or handling notes and coins may be avoided. And transactions could be made easier by the use of hand-held terminals that can be taken directly to disabled customers.
Staff will also have to be trained to deal sympathetically with those, particularly the elderly or tourists, who struggle with the system. Fear of public embarrassment may prove a further reason for reduced consumer spend. There will be some interesting ethical issues to be addressed about how far staff can go in helping customers to remember their PINs.
Finally, could traditional retailers lose out to the e-tailers? In the early stages of the complex new world of chip & PIN, paying for goods will inevitably take longer and there will be potential flash points as tempers boil over in the lengthening queues. Faced with this, might some consumers decide to shop on the Net instead?
The chip & PIN Programme Management Organisation has produced an Implementation Guide for Retailers which provides retailers with their own integrated or stand alone Point of Sale equipment an overview of some of the operational and technical considerations they will face when implementing chip & PIN, including best practice guidelines.
Copies may be obtained from www.chipandpin.co.uk but a brief guide can be summarised below:
- Establish the facts
- Talk to your acquirer to establish the effect chip & PIN will have on your business
- Obtain copies of the reports ‘Rolling out chip & PIN’, and ‘Checking out chip & PIN’ available at www.chipandpin.co.uk
- Contact the trade association for your sector to gain insight and learning from your peers
- Speak to as many suppliers and vendors as possible to build awareness of different solutions so that you can tailor for your retail environment
- Consider accessibility issues and the potential impact of the Disability Discrimination Act (DDA)
- Set up an internal project team, probably led by store operations
- Agree a time bound project plan for stakeholders, especially third party suppliers and vendors
- Build in sufficient time for certification, testing and re-testing
- Consider the Common Operational Processes recommended by the Programme when documenting your requirements and training programmes
- Start to build training plans and awareness from the outset
- Clearly understand your business drivers
- Ensure that hardware or software products are EMVCo certified
- Set up an internal pilot of the new system to test technical and operational issues
- Conduct acquirer acceptance testing and ensure your system is type approved
- Ensure implementation and training plans are in place
- Consider PIN security measures and Pinpad placement
- Go for it!!!
This article was written by Nick Hood, senior London partner at
Begbies Traynor, the UK’s largest independent insolvency firm.
