Chip and PIN cards are smartcards, technology that verifies a transaction as it happens. Smartcards replace traditional magnetic stripe equipment where credit and debit cards contain an embedded microchip and are authenticated automatically using a PIN (Personal Identification Number). When a customer pays for goods using this system, the card is placed into a “PIN pad” or “Chip & PIN Terminal” (often by the customer themselves for additional security) or a modified swipe-card reader, which accesses the chip on the card. Once the card has been verified as authentic, the customer enters their personal 4-digit PIN, which is checked against the PIN stored on the card; if the two match, the transaction get’s authorised.

France has cut card fraud by more than 80% using a similar, but incompatible system in the UK. Chip and PIN is the name given to the initiative in the UK but countries worldwide are launching their own initiatives based on the EMV standard, which is a group effort between Europay, MasterCard and VISA. By the end of 2004, 100 countries should have been using compatible systems based on this standard, and France aims to migrate its existing systems to be compatible with the new cards.

Note that “cardholder not present” transactions such as Internet, telephone or mail order purchases are not affected by the introduction of the Chip and PIN system. Since these are also major areas of fraud, other initiatives such as Verified by Visa and MasterCard SecureCode both of which are implementations of Visa’s 3-D Secure protocol are being developed to improve security in these situations, such as additional security codes printed on the back of the card and more complex authentication services.