Credit card fraud and shrinkage are two of the biggest bugbears facing retailers. However, as the smartcard begins to find favour in the retail sector, a host of additional security features are about to be ushered in.
Pierre Kotze, financial services executive at Integrated Card Technology (ICT), the smartcard manufacturer in the NamITech stable, said smartcards are effective in combating two major types of fraud: counterfeiting, where genuine data is acquired and encoded on a fake magnetic stripe card; and lost and stolen cards. According to Kotze, smartcards also put an end to the problem of cards not being received by bank customers, which are known as not received items (NRI). This happens because they have either been lost or stolen during the process of delivery.
Recognising the importance of chip technology to the future of the plastic payments industry, Europay International, MasterCard International and Visa International joined forces to facilitate the migration to smartcard technology.
The result was the integrated circuit card (ICC) specification for payment systems, known as the EMV ICC specification for payment systems.
With these specifications in place, said Kotze, the three card associations have paved the way for universal acceptance of chip-based transactions for credit, debit or ATM cards.
"Smartcards," said Kotze, "come with a myriad of advantages which can be of benefit to the retailer. When using a magnetic stripe credit card, the cardholder's signature is commonly used as verification. However, even the most diligent of merchants do not like inspecting cardholder signatures in detail; it creates a feeling of mistrust, and in some countries is regarded as socially unacceptable. If a mismatch is suspected, the confrontation is a personal one between the cashier and the cardholder. There also is no way to show whether or how thoroughly the check was done. Therefore, retailers are looking to chip to provide the route towards an objective, and preferably automatic, cardholder verification method such as the personal identification number (PIN). So a criminal with a lost or stolen card would need to know the PIN before the card could be used. PIN will ultimately yield to biometric information like a fingerprint minutia on the smartcard as that technology becomes more widespread and more economical."
Commenting further, Kotze said credit card issuers can remotely disable a stolen card, reducing the reliance on merchants' confiscation - and on their systems. Merchants sometimes disregard confiscation requests during a transaction, meaning the cardholder can use the card again at another location. "By instructing the POS terminal to disable the card that has been reported stolen, issuers can curtail fraudulent use without relying on store clerks."
Kotze adds that besides advantages to the retailer, smartcards also give the bank control over the actions of their cardholders by controlling the number and/or value of transactions that can be completed off-line, without compromising security, prior to the requirement of an authorisation.
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