By Jon Cairns

With the liability shift date of 1st January 2005 looming, more and more retailers are realising they will soon have to update systems to accept Chip & PIN. But given the multitude of different options available, how can retailers ensure they maximise return on investment?

We all know the key driver for Chip & PIN – to reduce escalating levels of card fraud. The chip proves the card is genuine, and the PIN proves the person actually using the card is the authorised user. Although a simple concept to explain, the technology and infrastructure investments can be large and retailers need the ability to cost-effectively add Chip & PIN to their existing solution. To do this, three new components are needed – a chip reader, a PIN pad and an EMV Level 2 kernel to provide the transaction processing and encryption technology.

One of the most obvious solutions is to purchase a single hardware unit (comprising chip reader, pin pad and EMV Level 2 kernel embedded in firmware), immediately available as bank owned terminals or purchased direct from a number of suppliers. Typically used as stand-alone devices these include their own communications line, but also can be connected to integrated PoS systems to provide a quick, “no nonsense” solution to Chip & PIN. However, often functionality is proven to be limited.

A more strategic and flexible solution can be obtained by separating the hardware (PIN pad/reader) and software components (EMV Level 2 kernel). This way, by running the EMV Level 2 kernel in software the retailer can remain vendor neutral with the ability to switch between readers and PIN pads with ease, adding to their negotiating power and giving greater control and flexibility. Furthermore, any EMV or business rule changes can easily be made to the configuration files without the need for firmware upgrades. This means that each time the standards are changed – which unfortunately seems to be fairly often at the moment – updates can be easily co-ordinated and applied, again without the need for firmware upgrades. These benefits are in addition to full iPoS (integrated point of sale) integration and the ability to run the solution anywhere in the architecture - whether at the till, store or head office server. Also, as on-going management and configuration can be performed in-house by the retailer, the Total Cost of Ownership is significantly reduced over the PoS lifecycle.

However, so far we've only focused on Chip & PIN, what about the future of smart cards - will it be loyalty, e-purse, Government ID cards or some other application we haven't even thought of yet? Those retailers who have invested strategically in a modular software solution will have the infrastructure in place to support any of these. This is because the software acts as the intelligence, and it can be modified to process different applications using the same chip reader. In this way the hardware can remain constant, protecting the initial investment and expanding the return on investment. In contrast, those who have invested in a single hardware device may be forced to add multiple devices to their systems to manage different types of smart cards, for example, you may need a device for Chip & PIN and a separate device for a loyalty scheme, both sitting on the same till top.

In summary, running EMV Level 2 in software provides a number of key benefits to retailers looking to migrate to Chip & PIN. Not only does it provide additional flexibility and manageability, but it gives a fully future-proof solution, with enhanced support for advanced card products and multi-application cards. Any investment made to comply with Chip & PIN must be future protected and expandable. By implementing a modular software solution the retailer is investing in an infrastructure that can address any card application, with any device, using any CVM (Cardholder Verification Method) with connectivity to any type of back office architecture – so whatever the future of retail or smartcards in general – the retailer has the infrastructure in place.

For further information contact:
Jon Cairns, STS Ltd. Tel: 0208 6800252