Not many people on this side of the world realise that it was actually an Irishman who invented the credit card. In 1950, Diners Club founder Frank McNamara invented the world’s first credit card when he was tired of having to carry cash every time he wanted to eat out. Within a year the idea had caught on and banks the world over began providing cards to their customers and merchants began accepting them for payment. It is 2003 and while credit cards are still in widespread use in the physical world and the virtual world of the internet, the level of fraud on credit card payments has become a serious problem.
After all the efforts of major players such as American Express, Visa, MasterCard and Europay to establish standards that would enable credit cards to become ubiquitous throughout the world, it appears that the need to stem the loss of billions of euro a year through credit card fraud will undo much of the progress of the past 50 years.
In Europe, Europay, MasterCard and Visa have joined forces to stem the tide of fraud and restore customer trust by implementing chip and PIN (personal identification number) solutions, whereby smart cards with SIM (subscriber identity module) technology would replace the existing magnetic strip cards and require card holders to input a PIN at the point of sale. January 2005 is the deadline for the complete implementation of chip and PIN technology within Europe and in Ireland chip and PIN credit cards are already available from Ulster Bank and MBNA.
However, in the US the credit card companies are going in a different direction, opting instead for proximity payment technology or ‘contactless’ payment, whereby the proximity of the credit card to the point-of-sale system is enough to secure a payment without allowing a store clerk any contact with the credit card. Analysts fear that this debate might result in a world where US and European credit card systems might not work together, creating a crisis for business travellers and tourists, not to mention merchants and banks.
“The high fraud rates of magnetic strip credit cards have pushed banks in this direction. However, the US and Europe are going in different directions and this could undermine universal accessibility currently enjoyed by most credit card holders,” noted Gerry Looby, chief technology officer at CardBase Technologies, at a Wireless Wednesday meeting in Dublin last week.
The good news is that there is a movement towards convergence using mobile devices that might bridge this gap – the Mobey Forum, a global, financial industry-driven forum, whose mission is to encourage the use of mobile technology in financial services. The membership encompasses leading financial institutions such as Visa and MasterCard and mobile terminal manufacturers including Ericsson and Nokia as well as other companies that want to be actively involved in creating the future of mobile financial services.
Mobile application developers, handset manufacturers and mobile networks believe that the SIM card in every mobile phone, which identifies every unique user and is capable of securely storing private information, could effectively marry seamlessly with chip and PIN technologies. This in effect means that mobile devices could be used to carry credit card payments in both chip and PIN transactions as well as for proximity payments. Already in Japan, SIM cards contained within mobile phones with infrared are being used to scan into a point-of-sale reader and a credit card slip is generated and signed.
“The biggest issue is translating this into local transactions, creating a platform that merchants and customers can trust,” said Looby. “It’s basically a clash between the physical and virtual worlds.”
Explaining why mobile operators are interested in expanding the role of SIM cards, Tim Cawsey, marketing and communications manager at card manufacturer Gemplus, said that while the SIM card has been pretty much the enabler of the mobile rollout of recent years for mobile network operators, these operators are facing ARPU (average revenue per user) erosion as voice gives way to data. “They are looking to making the SIM card the enabler for the unique experience that a user gets once they put card into the phone. In that way, it will control the look and feel of the device when they switch it on.
“However,” he went on, “this has created a conflict with the handset manufacturers, particularly Nokia with 53pc of the world handset market, who want users to know their own look and feel. By making greater use of the SIM, by such things as mobile payments, operators will get better control of the customer. The only thing that stands in the way is the device manufacturers,” Cawsey explained.
Dr John Whelan of Irish mobile software firm Alatto, which develops software for mobile gambling and ringtone downloads, described the complex mobile triangle between network operators, handset makers and application developers. “In the UK, ringtones have begun to outsell the sales of CD singles, with some €365m being spent a year. To say that the SIM card within phones cannot be used as a mechanism for these kind of virtual purchases would be wrong. SIM cards are fundamental, but right now they sit between the phone owner and the mobile network operators.”
He continued: “SIM cards will prove important for eventual physical purchases using mobile phones at the point of sale and that’s why mobile operators are falling over themselves to get a piece of the action. Unfortunately, the device manufacturers, while they want to see better uses for their phones, are unwilling to allow the mobile network operator to control the user interface on their devices and this is something that may hold up the move towards credit card payments in stores over mobile devices.”
By John Kennedy