Smarter software will help chip and PIN protect us from fraud

Changes to how credit card transactions are handled at point-of-sale will come into effect in Australia this Friday, August 1. Magnetic stripe and signatures will no longer be the primary method for verification – instead, a chip-enabled card and PIN will be required.

In order to support the new types of credit cards, merchants are required to upgrade their hardware or look at an alternate solution. There are still some situations where the customer isn’t required to provide a PIN:

• Contactless payments under $100 in value (i.e. payWave, PayPass)
• Any payments $35 or under in value
• The credit card has been issued by an overseas bank. In this situation they will be able to sign for their purchases. Europe is already on chip and pin, however, the USA is still using magnetic stripe, but this looks to be changing.

One benefit for merchants to invest in the upgrade is that the card schemes (Visa, Mastercard, AmEx) will cover the merchant for any chargebacks associated with a chip and PIN based transaction.

There have been some reports industries such as hospitality are concerned about the impact this change will have on other parts of their business, like tipping.

Ben Fuller from point-of-sale provider ImPOS sees an opportunity for new software systems to improve these parts of the business.

“Those saying it is the death of tips for wait-staff, haven’t made themselves aware of how the transition has been successfully handled in other countries. With our POS solution we’re leaving a space for the customer to ‘sign-off’ on the tip at the bottom of the bill. It is simple and if carried out correctly with the right dialogue, will result in more tips, not less,” Fuller says.

Stolen at the shop, spent on the web

Building a more secure payments infrastructure with chip and PIN is a positive step. However, according to the Australian Payments Clearing Association (APCA), roughly 70% of Australian credit card fraud occurs in a card-not-present environment (i.e. online, phone or mail credit-card transactions).

Generally, credit cards are stolen at an ATM or checkout, then illegally used online, where a PIN is not required. These regulatory advancements may result in more fraud being driven towards contactless cards and online transactions.

Software-based solutions

At Pin Payments we’re seeing a segment of small businesses ditching their hardware terminals in favour of our simple software-based solution.

Businesses processing a small number of transactions each month can find the up-front cost and long contract terms associated with hardware card terminals don’t make financial sense. Software solutions like this on the market offer a way to process card transactions on a pay-as-you-go basis, with the transaction fee being the only cost to merchants.

When it comes to risk, for merchants using our mPOS at markets, pop-up stores and similar, we always recommend they take steps to reduce risk of fraud. A simple tool can be to ask for photo identification that matches with the name on the credit card provided.

The move to chip and PIN is welcome, and it has the ability to significantly reduce the incidence of card “skimming” in retail environments. Skimming is the term used to describe the illegal harvesting of card details from modified ATMs and checkout terminals.

Web and mobile software tools provide a larger opportunity to protect consumers, potentially eliminating sensitive card details from transactions entirely. Progressive businesses such as Clipp are using a secure card-on-file method to allow bars and restaurants to charge customers through a mobile app.

Uber are doing the same for taxis and limousines. With chip and PIN hardware, skimming can be reduced. With software, skimming can be eliminated.

If credit card or bank details don’t need to be handled at the time of the transaction, then there’s no useful information for thieves to harvest.

Australia is moving ahead of some other markets (such as the US) in consumer protection practices, and these new regulations around point-of-sale hardware will benefit consumers. Still, there remains plenty of room for improvement as payments continue to go online and mobile.

Chris Dahl is from Pin Payments, an Australian start-up providing businesses with simple new ways to get paid.