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Smarter credit/debit cards

Financial institutions in the UK, Australia and US support Chip & Pin credit/debit cards. Malabika Sarkar examines the technology embedded in these high-tech cards

With cases of skimming rising (swiping a credit/debit card on a device called a skimmer, which captures the information stored on the magnetic strip of the card is known as skimming), banks are planning to introduce EMV (Europay MasterCard & Visa) technology. These payment cards carry an embedded microchip, which offers new payment options and services, greater security, convenience and choice.

Smart cards can protect against ‘skimming’ or copying the contents of the magnetic stripe. Combine these with a personal identification number (PIN) and you can reduce the danger of losing a card or fraud. While using these cards at the point of sale, the chip card sends a secret message to authenticate every transaction. This secret message changes for every transaction, making it harder for a swindler to steal the information.

In the beginning

In 1974, French journalist, Roland Moreno, filed a worldwide patent covering the concept of embedding a microcontroller into a plastic bank card. Moreno’s vision was to carry a smart card, which would effectively be the electronic equivalent of the personal organizer, as well as function as an electronic bank manager. Other visionaries within the card industry accepted his concepts with enthusiasm. This enthusiasm promoted discussion within the government, finance, transportation, medical and telecommunications sectors in France. With this began a series of technology trials that would change the face of card technology.

Skeptics typically regarded smart-card technology as an essentially French phenomenon that somehow grew into a global business. However, three decades later, with smart-card uses now ranging from e-commerce to the fight against terrorism, today’s applications are continually driving this maturing technology to address new vistas. The business case for smart cards has become compelling. The smart card’s inherent security, its wide availability and, since manufacturers have moved to mass production, its competitive costs have made it the preferred card technology.

Driven by the need for a card authentication solution to address rising fraud, the payments industry has been reviewing and developing card technologies to help secure the card and establish its authenticity at point of purchase. Over the course of review, the smart card emerged as the best and most cost-effective solution available today.

Among the major initiatives by the card industry was the establishment of an industry specification, EMV in 1994, which enables all merchants to utilize one terminal at point-of-sale to support any smart card regardless of the issuer or brand.

Gary Byrne, Vice President-Distributed Product Management, Chip Products Management, MasterCard Worldwide, said, “MasterCard has been recognized as taking a leadership stand by fully endorsing chip technology as an eventual replacement for the magnetic stripe, acknowledging that both card technologies will coexist in the near future. MasterCard has supported the migration to smart cards across all of its card programs. Over the course of the last decade it has introduced risk management functions, including the introduction of PIN at the point-of-sale as a card holder verification method.”

He added, “It has been instrumental in researching and developing value-added services to be built onto the EMV platform, including the first application, a prepaid product, MasterCard Cash, which it piloted in Australia in 1996.”

Smart Cards spectrum

A whole industry has grown up around smart card technology. Today, over 200 vendors sell smart cards, related devices and systems worldwide.

These days, banks issue smart cards for use as credit and ATM cards, telcos issue SIM cards for mobile phones, satellite and cable TV providers sell authorization cards for Pay TV, companies use high-security identification and access control cards, public transport bodies issue them as tickets, and healthcare providers issue cards that store a user’s medical information, and more. In recent times, financial institutions are using smart cards as electronic wallets, where the smart card chip is loaded with electronic money, which consumers can use to pay parking meters, vending machines and so forth.

Technology embedded

Smart cards are engineered to be tamper resistant with their built-in processors protecting the information stored on the chip embedded in the card. The goal is to ensure that critical transactions are secure. Compared with traditional magnetic stripe cards, smart cards are also able to store larger amounts of information. Smart cards can be contactless, such that the card communicates with the card reader through wireless self-powered induction technology. This allows for faster transactions, a boon in high transaction situations with contactless cards shaving up to 15 seconds off each transaction.

Interoperability is an issue easily resolved with the creation of standards, notably EMV, that dictate the protocols used to communicate with the cards.

While Europe continues to be at the heart of the EMV chip-based issuance and acceptance with significant numbers of POS and ATM terminals supporting the EMV card base, much of the growth over the last few months has come from other regions such as Asia/Pacific, Latin America, the Middle East and Africa.

Byrne said, “Globally, approximately one in every five MasterCard-branded cards (MasterCard, Maestro, Cirrus) carries an EMV chip with nearly a quarter of all Point-of-Sale devices upgraded to accept these cards.” MasterCard survey results revealed that these EMV chip cards are now accepted at over eight million locations around the world.

Main attraction

The best thing about smart cards is the heightened security. Encryption on a smart card directly addresses the way in which most credit card fraud is committed. Reducing the risk of fraud is good for consumers, retailers and banks. More information on the card means individuals can check loyalty points at their convenience, and other applications and new functions can easily be incorporated. Because of its interoperability and much of the information necessary for a transaction is stored on the card itself, buying things with a smart card is much faster. Less time is spent waiting for a transaction to be completed. They can also be used as personal identification, for mass transit payments, and even provide secure access to buildings or be used as hotel room keys.

Most people carry a few cards in their wallets, such as, ATM cards, credit cards, transit cards, etc. The smart card offers the opportunity to have them replaced with an integrated card that can be used in a number of instances. The increased memory of a smart card allows people to combine many cards into one card doing away with bulging wallets by using a single card that combines the functions of credit, debit, ATM and stored value cards.

While using a smart card from American Express, Diners Club, MasterCard or Visa in participating shops, you are asked if you would like to sign, as you have done in the past, or enter a PIN when pressing the ‘credit’ button.

A number of markets are experiencing significant EMV chip card growth based primarily on EMV acceptance in infrastructure deployment. Smart cards make the most sense when issuers, merchants, and cardholders all benefit from the advantages enabled by chip technology. Some Indian banks are planning to employ EMV chips in all gold and higher category credit-debit cards. They are still not sure about the mass market, as the cost involved is about 8-10 times higher than that of a vanilla card.

malabika.sarkar@expressindia.com