Chip-and-PIN is not a new dish from a fashionable chef; it's an attempt to cut credit-card fraud in the UK, which, according to the Association of Payment Clearing Services, cost the UK £424m in 2002 and could mount to £800m by 2005.
The UK banking industry has decided to tackle the problem using chip-and-PIN technology. By 1 January 2005, customers will no longer see their credit or debit card swiped, nor will they need to sign a receipt. Instead, they will have a card with a built-in chip that they will place into a hand-sized terminal. They will then be asked to enter a four-digit personal identification number (PIN) to sanction authorisation for payment.
David Cooper, head of the chip-and-PIN programme at Lloyds TSB in London, says the bank is confident chip-and-PIN will eliminate at least 70% of fraud that comes from stolen cards and 70% of counterfeit fraud within the UK. "Chip-and-PIN reduced fraud in France to a tiny fraction of the level we have in the UK," he says.
Chip-and-PIN is already up and running in a trial in Northampton. Between May and the end of July, retailers are getting to grips with the new system. After that, chip-and-PIN will continue in Northampton and gradually be rolled out around the country.
Luis Desouza, chief executive officer at NFS Hospitality, based in Hertfordshire, believes that chip-and-PIN will be a reality that all hospitality outlets will need to accept.
"The benefits in terms of secure payment will be the key driver," Desouza says. "And, frankly, the technical transition at the retail outlet level should not be too significant for those clients using open systems technology."
Chip-and-PIN affects your business in three main ways. The first is technological: your old terminal will need to be replaced by a new one. Chris Bourne, senior account manager at Dublin-based Trintech, says there are two main groups of merchants (including hotels and restaurants): those with payment terminals and those with EFTPoS (electronic funds transfer at point of sale).
"Those with payment terminals should talk to their acquiring bank or hardware provider, who should be able to provide a 'plug in and play' chip-and-PIN solution," he explains. "This usually requires a PIN pad that plugs into the payment terminal. Those with electronic funds transfer must talk to their PoS suppliers or EFT providers without delay."
Restaurants will see a bigger change than most. They'll need to use a wireless terminal so guests can enter their PIN number into a terminal at the table. As Desouza explains. "Guests will be more comfortable not having to give their card to a waiter, and the restaurant will benefit with more accurate payment collections. The increase in table-service ordering and payment lends itself ideally to chip-and-PIN technology."
Cost is another issue. Peter Dodd, reseller channel manager of Toshiba TEC, based in Watford, which is taking part in the Northampton trial, says: "The total cost of carrying out the chip-and-PIN programme in the UK is estimated to be £1.1b. And the British Retail Consortium estimates the retailers' share will be £350m."
Hardware is available from several different suppliers but the amount you will have to pay is complicated by the agreement you have with your bank, suppliers and so on. It's essential you talk to all parties involved now.
Cooper says it's easy to see why operators put off the issue. "We've sent information about chip-and-PIN to our customers saying to them to come and talk to us at an early stage about how you might need to make changes," he says. "And people are saying, 'I don't really need to do that yet because it's a long way away'.
"But it isn't a long way away. The end of 2004 in technical upgrade terms is just around the corner because it takes a while to plan and then to carry out these changes."
Another issue is the legal aspects. Adam Rose, partner at London lawyer Berwin, Leighton Paisner, which specialises in IT law, explains some key areas in which you may need to seek guidance. "Businesses may well need legal advice about the changes in liability for fraudulent transactions, including 'cardholder not present' transactions.
"Changing staff contracts might be an area on which advice ought to be sought, but also staff manuals, training and security awareness generally ought to be addressed."
As if all that wasn't enough, installing the technology itself might involve seeking legal advice, says Rose. "Hoteliers and restaurateurs will also need help to determine whether the hotel or restaurant is liable to replace existing EPoS equipment.
"And if it is, then advice and assistance will be needed for negotiating and concluding new agreements with hardware and software suppliers."
There will also be a significant change in the liability for fraud. As Rose explains: "Liability for fraud will shift from the issuing bank to the merchant (hotelier or restaurateur) that accepts the card payment".
The liability side is the area that most concerns the hospitality industry. Lloyds TSB's Cooper explains how it will affect retailers. "The liability shift is complicated by different rules for UK issued cards compared with those issued overseas. Post-31 December 2004, if a hotelier has installed only a chip terminal, it will be enough to protect against fraud on other European cards. But they will need to have installed PIN to avoid liability on UK-issued cards that are PIN capable."
The good news is that all this increased effort to combat fraud should help reduce the costs of fraud to the hospitality industry. Like it or not, chip-and-PIN is on its way and the message is coming out loud and clear: start planning now for the changes. Next year may well be too late.
Hardware suppliers
- Trintech has two systems. The SmartPIN Compact 950 incorporates a chip card reader and PIN entry device, while the Smart 5000 PIN Pad accepts existing magnetic strip cards and the new chip cards in one integrated reader.
Prices are dependent on volumes and specification. But NFS Hospitality chief executive Luis Desouza says: "NFS has already set up handheld solutions for table ordering, bill printing and credit card authorisation. For our clients, we envisage a low cost per terminal - around £150 - to make the transition to chip-and-PIN technology."
- Alphameric Hospitality is supplying a handheld mobile payment solution for the Northampton trial for chip-and-PIN. The hardware is an Ingenico 7700 terminal, which handles gratuities, cash-back services and pre-authorisation (for customers running a tab).
Case study Scottish & Newcastle
Scottish & Newcastle (S&N) has taken chip-and-PIN to the centre of its operations and has been an enthusiastic participant in the trial.
Bob Ivell, S&N retail chairman, comments: "Installing chip-and-PIN will be more complex for the hospitality industry than many other sectors because of the wide variety of pubs and restaurants in the UK. A one-size-fits-all approach is not going to work as the solutions have to be customer-focused."
The Whitehills in Northampton became the first pub in the UK to install chip-and-PIN technology on 19 May. Whitehills is one of 22 S&N retail outlets in Northampton taking part in the £50,000 consumer trial of the new technology.
John O'Donnell, manager of the Whitehills, says: "At the start of the trial, a couple of customers didn't know their PIN numbers but as time has gone on people have become much more knowledgeable."
The trial itself has gone well. "Feedback on the initiative has been very positive," O'Donnell says, "and the chip-and-PIN technology is simple to install, with transactions taking no longer to complete. Our customers have actually welcomed the change. The extra security measures give them greater reassurance and peace of mind when paying by card."
The company aims to have installed chip-and-PIN technology in all 1,400 of Its pubs by November 2004 to avoid any affect on Christmas trading.
Contacts
Alphameric Hospitality 01483 425505
Berwin, Leighton Paisner 020 7760 1000
NFS Hospitality 01920 485725
Trintech 01707 827000
Toshiba 01923 233688
Official chip-and-PIN website www.chipandpin.co.uk