Signatures might join the imprinter in credit card heaven come 2014.
Most adult Australians have signed their name on a docket at one time or another to authorise a credit or debit card payment.
Next time you have to sign, check how carefully the cashier compares the signature on the docket to the one on the back of your card.
When I worked in retail – which was only a couple of years ago, I rarely gave signatures a good look, and it seems the vast majority of those manning our checkouts do the same.
For fraudsters a signature can equate to an open door, and it seems card giants Visa, MasterCard and American Express have had enough of it.
In July this year Visa and MasterCard submitted to the Australian Competition and Consumer Commission (ACCC) their wish to see consumers use PINs rather than their scrawls for 90% of transactions by the end of financial year 2014. American Express joined the application soon after.
The digital age has rendered your handwritten stamp obsolete and I think it’s time we moved on.
According to Tyro Payments, a provider of merchant services for credit, scheme debit and EFTPOS cards, the move will go someway to reducing fraudulent transactions which added up to $261 million last year.
As is to be expected, some industry bodies, such as the Restaurant & Catering Industry Association, and the NSW Small Business Commissioner, see the merit in doing away with signatures but have some concerns.
They bring up the costs of such a decision, particularly if cafes will have to provide their patrons with a portable terminal or modify their counters to include room for customers entering in their PIN.
They also say it may mean patrons will have to walk up to the counter to pay, or make it harder for them to leave tips.
I’m fairly certain that a patron would gladly walk to the counter to pay for their meal if it meant there was a lower chance that they’d get fleeced of their money, have to involve their bank and suffer the ordeal of getting their lost funds back.
In Europe the portable terminal can be found in a range of places. I personally encountered them in most of the eateries I visited, including a large Parisian bistro and a small outdoor barbeque restaurant on the tiny island of Trstenik, Croatia.
Keep in mind some of these locations – Trstenik for example, don’t even have ATMs.
Other industry forces like PayPal have raised in their submission the possibility that the move could see paying using your PIN entrenched in consumer minds, and “create an effective barrier to entry by innovative firms and foreclose new business models”.
In other words, urging consumers to pay using their PIN might make them forget there are other new and secure ways of paying without using their card.
It’s true that many parts of the retail industry are doing it tough – although recent statistics from the ABS paint a rosier picture for the cafe, restaurant and food services industry. They’ve grown steadily over the last few years, and recently seasonally adjusted from July figures show a 0.4% growth in trend estimates for cafes and restaurants in particular.
Minimising the costs to Australian small businesses doing it tough is important, and as the submission from the NSW Commissioner of Small Business reads, there should definitely be “adequate engagement” with small businesses to “address operational concerns and develop optimal technical solutions”.
Small businesses and companies like PayPal might think about the added headache this change will present and the additional costs or interruptions it might bring.
I urge them to think about the consumer and what we too put up with – namely fraud and the associated financial or time costs it comes with, and sky-high credit card surcharges simply for using our cards in a taxi or to book a flight.
It’s time we threw out the old, and embraced the (electronic) new.
History of the credit card
The credit card we know today evolved from the original charge cards that were used by various merchants as far back as the early 1900s. Early charge cards were often issued by large department stores so customers could buy products from them with more convenience.
It wasn’t until 1946 that the first bank card, known as ‘Charge-It’ was issued by a banker from Brooklyn named John Biggins. The original concept was that a customer could use the bank card to pay for a purchase at a retail outlet. The customer would take the goods and the merchant would forward the bill to the bank at which Mr Biggins worked. The bank would cover the payment to the merchant and then issue a bill to the customer.
The original Charge-It worked fine, but only if you were a customer of the Flatbush National Bank of Brooklyn and only if you made purchases with local merchants who agreed to the credit terms.
The first credit card as we know it was released after a patron at a New York restaurant forgot his wallet in 1949. The patron, Frank McNamara, decided diners should have an alternative to carrying cash and developed a cardboard card called the Diner’s Club Card, releasing it in 1950. It didn’t take long for word to spread, and retail merchants in the travel and entertainment industries also agreed to accept payment via the Diner’s Club Card as well. By 1951 there were 20,000 Diner’s Club cardholders.
In 1951, the Franklin National Bank in New York expanded on the Charge-It concept a little, offering their own version of a bank card, but it still required that customers were account holders at that bank first.
By 1958, American Express released a charge card designed to be used to pay for travel and entertainment bills. By 1959, they upgraded their cardboard cards to plastic cards.
Prior to 1959, the bank card system was operated in a ‘closed-loop’. This meant that the card issuer handled the transaction by paying the merchant and billing the customer. Customers were required to pay off their entire bill at the end of every month.
The idea of offering a revolving line of credit was made into a reality in 1959. This meant customers no longer had to pay the entire card balance off every month. Instead, they could pay off their balances over time. The downside to this was that customers incurred interest costs and finance charges, but it also gave them much more flexibility with their own finances. However, these still operated on a closed-loop system.
In 1966 the first credit cards operating on the open-loop system were introduced. These required the cooperation of other banks for their funds transfer. The Bank of America had already released their BankAmericard years before, which later in 1976 became known as the Visa card. In the same year, the InterBank Card Association started offering their own credit cards, which later became known as MasterCard.
Credit card signatures
Storing computer data on magnetic strips began back in the ’50s, but it wasn’t until 1971 that these strips were added to credit cards.
The data stored on the magnetic strips allowed credit card issuers to store and access financial data and account information about cardholders and their accounts.
As the cashier at the point-of-sale swipes the card through a magnetic reader, data about the transaction is stored on the strip.
As credit cards have different credit limits available on them, the information on the magnetic strips made it easier for card issuers to keep track of who had available funds to pay for purchases and who didn’t. This also allowed the credit card reading devices at point-of-sale outlets to accept payments or decline payments if there were insufficient funds.
When was the PIN first introduced for credit cards?
Even though putting your signature on a payment slip to verify your credit card purchase has been commonplace for decades, the availability of using a PIN to verify purchases has been around since 1967.
James Goodfellow is credited as inventing both the PIN and had a large part in the invention of the ATM. The basis for his idea was the simple vending machine. He figured that banks could issue cash in much the same way, but a security code should be added to authenticate the transaction.
Most PINs are set between 4 and 10 numbers long, although to help reduce user error it’s often recommended to choose a PIN with 6 numbers that can’t be easily guessed by others.
When used to verify a credit card transaction, the cardholder has a higher level of security over a signature. This is because a signature can be easily forged, but it’s much harder to figure out someone’s PIN.
Adding a microchip to credit cards
Swiping your card through a magnetic reader and then entering a PIN to verify your transaction offers a certain level of security. Unfortunately, technology available on the black market allows fraudsters to read and write to magnetic strips, which lets them capture your credit card details and use them to make purchases of their own.
To counteract this, the idea of using a microchip to store data was launched in 2003, and now most cards come standard with a chip embedded into it. The reader at the counter of a store verifies that the chip is authentic before the cardholder has to enter in their PIN to authenticate the transaction. You might be alarmed at some of the credit card fraud statistics
Tap and go history
Advances in RFID (radio-frequency identification) technology allowed credit card providers to take advantage of a wireless non-contact method of transferring data.
This emerged as a contactless payment option that lets cardholders wave a credit card near a modified payment terminal in order for payment to go through.
MasterCard trialled their ‘PayPass’ contactless option back in 2003, but it wasn’t until 2005 that is was released to broader markets. American Express also released ExpressPay, their version of contactless credit card payments in 2005. In 2007, Visa launched their payWave technology.
Cardholders don’t need to swipe their card into a magnetic reader and this reduces the chance that the magnetic strip can be cloned or used fraudulently. There’s no need to insert the card into a reader to verify the chip authenticity, reducing the risk of fraud. There’s also no need to enter a PIN where someone else can see it or sign a signature that someone else could forge at a later date.
Instead, the card never leaves the cardholder’s hand. The payment is processed after swiping the card and is returned to the cardholder’s wallet or purse immediately.
There has always been some debate about whether a signature or a PIN is safer with cardholders. In reality, there are pros and cons to either option.
Using a signature to authorise your payments can make it a little harder for another person to forge your signature accurately. Merchants are also able to confirm who you are more easily simply by comparing the signature on the slip to the one on the back of your card.
Unfortunately, far too many clerks and cashiers don’t look as carefully as they could at the signatures before them. This increases the chance that someone else could get away with using your card to pay for things.
By comparison, using a PIN to verify your transaction requires you to enter a four-digit-code to authorise your transaction. If someone else was to see and remember your PIN and then steal your credit card at a later point, your account could be compromised.
There are some simple ways to safeguard your credit card. These include ensuring that no one can see your PIN when you enter it. You should always make sure your credit card stays within your sight at all times and always secure it back in your purse or wallet immediately after using it.
Most people are aware they can pay for things over the phone or over the internet with their credit card. In these cases, your credit card isn’t actually presented to the merchant directly to make your payment. Instead, your details are entered by the person on the phone or entered into a secure website payment page. Merchants call these card-not-present payments.
While there are differences in fees for signing your name or using a PIN and further differences in fees for having a Visa or MasterCard, there are even more fees and surcharges to consider when you make card-not-present payments.
In fact many Australian consumers and consumer advocacy groups have recently directed their rage at airlines, taxis and the telecommunication industries for their high surcharges.
Surcharges are often calculated as a percentage of the transaction amount and will vary depending on the issuer and processor.
Tips to increase your PIN security
The PIN you choose for your credit card needs to be a number that you can remember, but it also needs to be something that others can’t easily guess. Here are some tips to increase your PIN security:
- Enter your PIN into an ATM or EFTPOS terminal in view of others
- Choose your birthdate for your PIN
- Use the same PIN for all your credit or debit cards
- Use the PIN that came with your card. Change it to something else immediately
- Use the last four digits of your phone number
- Use repeating numbers. Be sure they’re all different
- Consider using a 5 or 6 digit code to make it harder for hackers to crack
- Change your PIN regularly to something you can remember