Banks in Europe are turning to chip and PIN payment cards not just to combat fraud but also in the hope that greater security will boost usage and strengthen their relationship with their customers. Stephen Timewell reports.

The formal roll-out of chip and PIN payment cards across Europe this month marks the culmination of a seven-year plan. But, while the migration from using signatures is far from complete, the aim of being ‘as fast as cash’ is being achieved.

The liability shift that takes place as a result of the implementation of the EMV (Europay, Mastercard,Visa) chip infrastructure represents a significant change in the payments industry as well as the possibility of new charging models.

While chip and PIN is set to slash retail card fraud by between 50% and 80%, the advantages and opportunities extend well beyond fraud reduction. Plastic cards – and, in particular, the debit card – have the potential to become the backbone of financial institutions’ relationship with their personal customers.

Cards take over from cash

In his latest report, The Debit Card Market, financial author Tony Gandy notes that total plastic card transactions in the UK in 2004 are expected to reach £269bn, moving ahead of cash payments of £268bn for the first time.

“By providing the convenience, the accessibility and the usability that customers are looking for from their current accounts, debit cards tie the customer to their bank. While many consumers have relationships with other payment card providers, the debit card locks the consumer into a long-term financial relationship,” he says.

“A turning point for the expansion of the debit card will be the successful adoption of chip and PIN,” says Dr Gandy. Recent research shows that only 1% of the UK population choose to pay with cheques when shopping while 51% prefer to use debit cards at the supermarket, he says. With a wider functional base than other plastic cards, the debit card’s role as an access device will continue to expand, not only in cashback facilities but also in terms of travel and usage abroad.

“The introduction of chip and PIN across Europe is also likely to increase debit card volume on UK-issued cards used abroad,” says Dr Gandy. “Around 75% of cardholders already consider debit cards to be safer than carrying cash. Add to this the familiarity of consumers with the PIN for their debit card, and there could be a trend away from using their chip-based credit cards by those consumers unable to recall their PIN.”

The implementation of chip and PIN, however, comes at a hefty price – for example, retailers and banks in the UK have invested £1.1bn in new systems. However, as Dr Gandy says, this should be weighed against the growth of card fraud – £402.4m of fraud was committed on UK cards in 2003 alone.

Cheaper, faster, safer

Reflecting the changes in the debit market, in early December, Visa Europe launched a new pan-European debit solution called V Pay, which offers a common point of convergence for Europe’s diverse number of domestic debit card schemes.

“Chip means that V Pay will be cheaper for banks, faster for merchants and safer for cardholders,” says Hans van der Velde, CEO of Visa Europe. “V Pay fulfils the needs of European members, including the flexibility to accommodate domestic account numbering schemes, exploiting the existing infrastructure, capitalising on investments in EMV chip migration and, importantly, maintaining local governance.”

V Pay offers a marginal cost reduction per transaction of E0.01-E0.02 and, as transaction per card per year moves up from the current 120 to a forecast 240 transactions per year, further economies will emerge.

Work to be done

The pace of change, however, depends on the number of cards that are EMV-compliant. In the past few months, there has been an acceleration of migration to the cards but more needs to be done if, for example, all UK cards are to be enabled by the end of 2005.

At the end of June 2004, according to the latest Visa report, 64 million EMV cards had been issued (27.7% of total Visa cards in Europe). In Belgium, Denmark, Luxembourg and the UK, more than 60% of Visa cards are now EMV. Meanwhile, the card roll-out is well under way in Andorra, Austria, the Czech Republic, Finland, France, Germany, Greece, Ireland, the Netherlands, Sweden, Switzerland and Turkey.

According to Dr Gandy’s report, substantial work is continuing with the deployment of automated teller machines (ATMs) and point-of-sale terminals. About 900,000 EMV terminals (20% of the total) have been deployed across Europe, with more than 50,000 ATMs upgraded.

All these figures will have increased by the end of 2004, indicating that Europe is setting the pace in the global migration to chip and PIN. But, with card issuance pilots only just beginning in 10 European countries (including Italy, Spain and Poland) in recent months, the roll-out will still take some time.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter