As the world of card payments continues to develop, offering customers and merchants alike various ways to accept payments, it’s become ever more crucial to understand the different ways to pay.
You may have heard of contactless, magnetic stripe, and chip and PIN payments. But what is a chip and PIN and what is a chip&PIN transaction? Let’s find out!
Chip and PIN meaning
Before digging deeper into chip and PIN payments, it’s first important to examine the physical structure of your debit or credit card. So, what is the typical information you will see on such a card?
First, there’s the PAN number, the expiry date, the cardholder name, and on the back, there’s the 3-4 digit CVV number for security. But there’s something else. That something extra is a physical chip embedded in your card. This chip enables the card to be read by a card machine.
Introduced in February 2006 in the UK, chip and PIN payments were brought about by EMV (Europay, Visa, and Mastercard) to reduce fraudulent transactions because of the ease with which fraudsters could duplicate the signature on the back of the card with magnetic stripe payment. This has certainly proven to be effective, as annual counterfeit card fraud losses dropped by £81.9 million between the period 2004 and 2014.
So, is there a difference between chip and PIN and contactless and magnetic stripe payments?
How the payment acceptance process works is the same, and it goes something like this: the customer will slide their card into the slot of the POS terminal after the merchant has entered the purchase amount. It will then prompt the customer to enter their Personal Identification Number (PIN) after which the card reader will “read” the cardholder information mentioned above and transfer that information to various parties.
These will include the cardholder’s issuing bank to ensure there are sufficient funds in their account, the card scheme involved, and the merchant’s payment acquirer to ensure the funds from the customer are transferred to the merchant’s account.
This process takes mere seconds to complete but is one of the most secure ways to pay because a PIN is something that should ideally only be known to the cardholder and is information that a bad guy could not get their hands on quite as easily as the ability to forge a signature with magnetic stripe payment.
Benefits of chip and PIN
Now that we’ve covered a bit about chip and PIN, are there any benefits to this type of transaction? Yes! In fact, there are several.
For starters, it reduces the rate of fraudulent transactions for both merchants and the cardholders. It also reduces the responsibility for authentication of cards. In the past, merchants or their employees would need to compare a signature on the receipt while causing delays and long queues, leading to the need to hold onto paper receipts making bookkeeping tedious and time-consuming, as well as inability of some employees to spot a fake signature leading to a fraudulent transaction.
Finally, chip and PIN payments can speed up the payment process and offer one more layer of extra security for both parties in the purchasing process.
Now that you know what does chip and PIN mean and what its benefits are, your next transaction will be safer and more secure knowing that only you know and have access to your PIN.