What is Chip and Pin on Credit cards

What is Chip and PIN?
According to a note from Abbey National Bank:
"Chip and PIN is a new, more secure card payment method that's gradually being introduced by banks and shops across the UK. When you use your card to buy something in a shop you key in your Personal Identification Number (PIN) instead of signing a receipt. This is the same PIN you use at a cash machine to take out cash.
Shops in your area may be using it already and it will be common at all major retailers by 2005."
"Chip and PIN is designed to reduce card fraud and the hassle it causes. Built-in microchip technology protects the data on your card from being copied or altered."

Banks and retailers are replacing traditional magnetic stripe equipment with that based around smartcards, which contain an embedded microchip and are authenticated automatically using a PIN. When a customer wishes to pay for goods using this system, the card is placed into a "PIN pad" terminal (often by the customer themselves) or a modified swipe-card reader, which accesses the chip on the card. Once the card has been verified as authentic, the customer enters a 4-digit PIN, which is checked against the PIN stored on the card; if the two match, the transaction will be automatically completed.

France has cut card fraud by more than 80% using a similar, but incompatible system. Chip and PIN is the name given to the initiative in the UK but countries worldwide are launching their own initiatives based on the EMV standard, which is a group effort between Europay, MasterCard and VISA. By the end of 2004, 100 countries will be using compatible systems based on this standard, and France aims to migrate its existing systems to be compatible with the new cards.

Note that "cardholder not present" transactions such as Internet, telephone or mail order purchases are not affected by the introduction of the Chip and PIN system. Since these are also major areas of fraud, other initiatives such as Verified by Visa and MasterCard SecureCode—both of which are implementations of Visa's 3-D Secure protocol—are being developed to improve security in these situations, such as additional security codes printed on the back of the card and more complex authentication services.

Benefits of Chip and Pin
Under the old system, a customer would have to hand over their card to the retail assistant or to the restaurant waiter for each payment. In certain environments such as restaurants, for example, this often meant that the card would be taken away from the customer to the card machine. This kind of card being taken out of sight gave rise to situations when the card was either duplicated or the card details being stolen. This is no longer the case with the introduction of Chip and PIN as wireless PIN pads have been introduced that can be brought to the customer's table.
Hence, Chip and Pin offer much more secure and easy mode of payment. However, it is also related with some problems. Let’s discuss the problems with chip and pin in the next article.