Custom «Chip Away» Essay Paper Sample
Card fraud emancipating from data breaches has been an ongoing problem in the banking industry. Majority of these frauds are carried at point of sales (POS) systems and are made possible by what is seen as a weak link between the retail payment process and, more specifically, the use of magnetic strip cards generally referred to as financial cards. With increased cases of consumer fraud over the last couple of years, the need to introduce cards which can provide high level of security when conducting retail sales payments became important. This led to the introduction of EMV cards, whose name is a synonym for the coalition between Europay, MasterCard, and Visa. EMV cards are credit cards that combine a chip and a personal identification number. The specifications for EMV cards were first developed in 1990s and have since become a norm in the banking industry. These cards store customers’ information on an implanted microchip, which has earned them the name chip cards (Murdoch, Drimer, Anderson. & Bond, 2010). As compared with the old case when customers were required to swipe cards and then sign to complete payment, chip cards are inserted and the customer is prompted to enter a personal identification number to verify the transaction. The purpose of this paper is to investigate the growth in EMV (chip) cards and their contribution towards security of customers’ financial information.
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Consumers rely heavily on debit and credit cards to make payments for their purchases of goods and services. Between 1997 and the year 2011, card payments accounted for 48 percent payments increase from 23 percent in the base year. The same period saw a decrease in the number of payments made using checks and cash. This shift makes fraud prevention and card security more important than ever. In line with this, Europay, Visa and MasterCard formed a coalition to find a solution for increased cases of fraud and reduce cases of insecurity. The first specification of EMV cards dubbed EMV ’96 was first released in the year 1996 with another version following two years later (Murdoch, Drimer, Anderson & Bond, 2010). Since then, EMV specifications have continued to be published with the most recent one having been released in 2011. EMV cards or chip cards allow users to delineate their own risk management processing which takes place in the chip and in the issuer host as well as in the information content.
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EMV cards were rapidly adopted as a way of reducing card fraud at POS and at the ATM. The main idea behind chip cards in this context is to prevent counterfeiting of cards by introducing a chip and preventing card theft through a personal identification number. One of the major objectives behind the introduction of chip cards was externalize dispute costs from the issuing bank. In this case, if a disputed transaction was authorized using the PIN, then the disputed transaction cost was charged to the customer (Bond, Choudary, Murdorcj, Skorobogatov & Anderson, 2014). On the other hand, if authorization occurred via a manuscript signature, then merchant would be held liable for the cost. The net effect in this case is that the banking industry eventually carries less liability in fraud cases involving chip cards a phenomenon that has been labeled liability shift.
Chip cards also protect consumers from fraud in that they are required to both be in possession of a card and know a personal identification number to complete and authorize a transaction. In this regard, a person presenting the card at a point of sale or an ATM without the PIN cannot be able to make a transaction unless there is a lapse on the side of the merchant. Equally, a customer with a PIN and no physical card cannot be able to make a transaction. However, if a consumer willfully or forcibly gives his or her card together with the personal identification number to another person, the security benefit provided by chip cards is overgone. In line with this, consumers are advised to keep their cards safe and refrain from divulging their PIN to other people to avoid loss of financial information and money through fraud (Figliola, 2015). During the verification process, the terminal and the card initiate a negotiation mechanism to determine which authentication process is to be used, and it is after this process that the customer is prompted to input the PIN.
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Despite the fact that chip cards have helped increase security of consumer financial information, there are differing views as to the extent to which they have helped reduce fraud. One of the major contested issues relates to the concept of liability shift. As it would be expected, the arrangement behind liability shift is expected to create a moral hazard, whereby banking institutions are insulated from risks arising from poor system design. It is important to note here that while there has been increased popularity in the growth of chip cards, most of the technical designs that go hand in hand with them are still outdated (Bond, Choudary, Murdorcj, Skorobogatov & Anderson, 2014). For example, most banks are still using old types of ATM machines, which allow for the use of both chip cards and magnetic strip cards. In this context, customers continue to use these outdated designs, which has in turn increased the number of disputes and fraud cases as opposed to reducing them.
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Like in the case of magnetic strip cards, EMV cards are still prone to card skimming activities implying that it is still possible for customers to fall victims of fraud cases when their cards are stolen immediately after conducting a transaction. In addition, the loss of a personal identification number for one reason or another may bar a customer from accessing their funds. Personal identification number may be lost out of a lapse in memory or by multiple attempts. In any of this scenario, customers are required to order a new card given that issuing banks do not keep records of PINs in their databases for security purposes (Figliola, 2015).
In conclusion, EMV cards or chip cards surpass the magnetic strip cards in terms of security. As opposed to magnetic strip cards that required a manuscript signature for a customer to authorize a transaction, chip cards require the customer to be in possession of a card and a personal identification number. During transactions, the customer either swipes the card at the point of sale or inserts it in the ATM machine after which he or she is prompted to key in the PIN. Once the PIN is accepted, the transaction is considered authorized; otherwise, the transaction cannot be completed. The idea of EMV cards was first developed in an effort to shift fraud liability away from the issuing bank. In this context, if a dispute arises and it is discovered that the PIN was used to authorize the transaction, then the customer is held liable. If, on the other hand, a manuscript signature was used to authorize the transaction, the merchant is held liable. This arrangement works to shield banks from taking liability of fraud but has been criticized on the basis that banks continue to use outdated design systems, which has been accused of increasing cases of frauds instead of reducing them. In addition, EMV cards are also subject to skimming activities and may lead to financial loss just like their old counterpart, the magnetic strip cards.