13th February 2016

The future of Chip & Pin

Written by Richard Koch, Head of Policy at The UK Cards Association

Ten years ago, the UK moved over to a Chip & PIN-based card payments system to combat the rising levels of fraud on counterfeit and stolen cards.

Although the rollout happened gradually, February 14, 2006 was the day the change was complete. The changeover was the culmination of the largest change in the way we pay since decimalisation in 1971.

To mark the anniversary, The UK Cards Association has produced a report which looks at the introduction of Chip & PIN, its current role and how it could develop in the future.

By moving to a system which used PIN verification, Chip & PIN broke with what was effectively an 18th Century system which relied on signing pieces of paper to authorise a payment.

Since it was introduced, the number of transactions using debit and credit cards has soared, with almost four in five pounds spent at British retailers in 2015 made in this way. By comparison, in 2006 the figure was just over half of transactions.

Forecasts suggest the annual amount spent on debit and credit cards could reach £901 billion in 2024.

Fraud on counterfeit card and high street fraud has fallen over the past 10 years, with annual counterfeit card fraud losses alone down £81.9 million between 2004 and 2014.

As we explain in our report, the Chip & PIN system was deliberately designed to be forward-looking, to enable future innovation. Among the Chip & PIN system’s successes are contactless payments, which are now used for a tenth of card transactions. It has also enabled card payments to be processed by mobile retailers and in unattended environments.

Chip & PIN also brought more flexibility for retailers, who no longer had to serve customers at a fixed till point and could experiment with mobile points of sale.

For example, retailers now offer tablets instore for shoppers to buy, and in the future mobile phones could be used to scan and pay for goods.

There has been an explosion in online shopping since 2006 and about a fifth of all card transactions are now made online. Card spending on the internet hit £11.9 billion in December and in the future we expect to see continued growth as more retailers add buy buttons and facilitate one-click payments.

When the UK introduced Chip & PIN in 2006 it was a world-leading card payments system.  It was a great success with both consumers and retailers and remains the envy of many industries. With more than three-quarters of card payments made using Chip & PIN last year and London the fintech capital of the world, card payments will continue to be the UK’s preferred way to pay for years to come.

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