Chip and PIN Technology Explained

It may seem quite commonplace nowadays, but the first chip and PIN solution that was ever widely used was available in France only. It used the French B0 standard and could only be used within domestic markets. Before then, the world’s first multi-function chip card, which was developed by Visa, was used in Japan. Known as the SuperSmart card, it did not take off. It was not until 2003 that the UK ran chip and PIN trials within its cards. Issuers took part in trials in Northampton and Dunfermline with in excess of 117,000 cards being issued to locals. To cope with the then new technology, over 500 chip and PIN card readers were installed locally and 14 cash machines were converted to adapt.

Chip and PIN Goes Mainstream

In 2006, the UK government decided that the enhanced security offered by chip technology, along with forcing card users to enter a four-digit personal identification number when they made a transaction, meant that the project would be rolled out nationwide. Cards had been used widely before then, all but replacing cheques as a means of not having to carry cash around, but transactions still had to be signed for. The conversion to a chip and PIN reader in nearly all stores in the country, let alone the changes to credit and debit cards, meant that this was the largest consumer changeover since the country had adopted decimalised currency.

How Does the Chip Work?

Although the presence of a chip in a debit or credit card is obvious – it can be seen housed within the plastic of the card – few people actually have a good understanding of how this small device functions. The chip itself is known as an EMV, which is a term coined after the three giants in the industry who first agreed upon a common standard. They were Europay, MasterCard and Visa. Today, the standard is managed by an independent organisation, named EMVCo, a consortium which includes other major card issuers. The data held on a card is contained within the chip itself, making it more secure than on the magnetic strip on the back of the card. When a card is inserted into a chip and PIN card reader, it will offer up this data from its integrated circuits. Essentially, the data held on the chip is the card number, its expiration date and so on, but a terminal is required to then ask whether funds can be released for a transaction, usually via the vendor's merchant provider over a telephone connection. Crucially, the PIN number associated with the card is also stored, but this is something the vendor has no access to. Buyers can review the sale and authorise the payment by entering their PIN into the vendor's chip and PIN machine. The system is only secure if the card owner keeps their PIN number secret.

Increased Payment Convenience

Since it was rolled out, the humble chip and PIN card reader has worked its way into many corners of life. Once they were only found in banks, for cash machine transactions, and larger stores. However, nowadays many modestly-sized retailers and sole traders have them as a convenient means of taking payment. Indeed, they have become essential business tools, such has the public got used to not carrying cash around, secure in the knowledge that their PIN number protects them from others accessing their available credit or bank balance. Today, a mobile chip and PIN machine can be used just about anywhere, thanks to payleven. All that is needed is a small reader and access to the internet via a smart phone or tablet. Customers can now pay a vendor anywhere they like, even from their own home, an ultra-convenient tool for tradesmen and salespeople who travel around a lot.

Consumer Protection

Along with the enhanced fraud protection that entering a PIN offers over the older signature method, UK inhabitants enjoy further consumer rights with cards that are fitted with EMV technology. From 2009, the Financial Services Authority has placed the onus on banks and other card issuers to prove transactions are genuine, rather than consumers having to prove they were not, if something goes wrong. As such, the principle is that liability for errors has unquestionably shifted to the card issuers.