Why ‘chip and PIN’ cards are a safe payment option



With almost full adoption of chip technology by local banks as a way of securing cards, besides the traditional use of a PIN (personal identification number), the stage is set for greater adoption of this method of payment in Kenya.

It is laudable that the Kenya Bankers’ Association and the Central Bank of Kenya have been actively involved in this drive. Greater use of debit and credit cards will not only improve safe, secure and convenient trade within the country and the region but also between Kenyans and their businesses with peers from other parts of the world.

Despite the recent ascendancy of other means of payment for transactions, the use of cards remains one of the most widely accepted globally. Still, greater adoption of this mode of payment has always been constrained by what were previously well-founded concerns about security.

It was out of these concerns that the three major electronics payment companies in the world – Europay, Mastercard and Visa came together in the mid-1990s in a partnership to find a common solution, to manage, maintain and develop chip technology better known as the EMV card chip.

Today, 14 years later, the innocuous little chip that sits on the left side of plastic cards has made electronic payments more secure and faster in a manner that was hitherto unimaginable with the magnetic strip technology it replaced. And it matters little whether the cardholder is in a coffee shop in Nairobi or a jewellery shop in New York.

The chip provides three key safeguards: it can store information; process it; and is also capable of keeping secret information and processing it. The card works like a mini computer; always processing information.

It is thus impossible to clone the chips and the circuitry that makes them work. Each chip and card is unique. If someone tries to pull a chip off one card and place it on to another, it destroys the circuits that run through the card.

When using the card to make a purchase, the card must come in contact with an acceptance terminal. The terminal reads the card and activates the chip, which verifies that the card is authentic and that the owner of the card has sufficient funds to complete the purchase. This allows the entire payment process to be made quickly and securely.

Magnetic strips, which were the industry standard previously, had become too easy to copy or clone and the focus of fraudulent activity. Once the magnetic strip is read by the terminal, the card would no longer be needed as all the data would be transferred to the terminal. The terminal would perform all the processing. It would be easy for fraudsters to swipe the card and retain all the data within a terminal and use it to create a new cloned card.

The chip also allows the issuing bank more flexibility in determining and enforcing payment rules. These can be customized to include a number of additional security features such as verifying the cardholder’s identity through a PIN or written signature. The bank can define the rules and program the same into the chip, depending on the level of security deemed necessary.

Already, the use of chips has saved banks massive costs in fraud investigations globally. The use of EMV chips has considerably cut down on cloned cards that were previously used in suspect transactions. Fraud costs banks money in replacing counterfeited cards, besides compensating those who have lost money. Consumers also have to bear the costs and suffer the attendant inconvenience.

In Kenya, the adoption of the chip and PIN cards is expected to deepen the use of the cards, not just at ATMs, as has been traditional, but also at various merchants or points of sale (PoS). This is expected to be spawned by increased trust and the emergence of a bigger and consumption-driven middle class.

The 2013 Kenya Financial Sector Stability Report by Central Bank of Kenya (CBK) shows that the number of active cards in the hands of Kenyans increased from 10.7 million to 11.5 million in 2013. PoS terminals grew 14.1 per cent to 21,089 over the same period, due to wide acceptance of settlements through payment cards and expansion by merchants.
In tandem with this overall growth trajectory, total number of cards, both credit and debit, stood at 11.5 million in December 2013 compared to 10.7 million in December 2012.

(The author is General Manager, East and Southern Africa, at Visa Inc)

  • Yes this is an excellent product, only problem is in the usage. The retailers, seem a little lost so when do you present your card, they still swipe. By the time it comes to putting in the PIN, there is hardly any privacy. Finally I wish it can be like the UK, where the machine is kept strategically that you put in the card yourself, punch in the PIN and only then are authorised to get your shopping bag.

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