The Never-Ending Battle

No industry observer is surprised by the reported rise in fraud committed abroad on UK cards.

The perverse effect of harder-to-crack chip card technology is that fraud increases where chip cannot be used, by using cards with information obtained by skimming or other ways obtaining the information located on the mag-stripe on the back of the very same chip-card. Fraudsters, seeking the path of least resistance, gradually move to next safe haven to exploit the opportunities where chip has little or no impact.

One of them is the internet, leaving ample space for fraudsters to conduct their lucrative business. Although card issuers and acquirers deploy ever more sophisticated verification methods, there is still room for business growth, unfortunately, for fraudsters.

The other alternative is to move abroad. Although the card industry is finally gaining momentum in implementing chip technology, there are still large white spots on the map of chip-reading POS-terminals. Mag-stripe only POS terminals in combination with collusive merchants or below-the-floor-limit transactions are still among the simple but effective ways of fradulent activity.

Some may think that I am pessimistic on behalf of the card industry regarding its ability to curb fraud. I am by no means pessimistic, just vigilant. Card fraud is like squeezing a balloon. Squeezing one part of it will automatically result in the balloon bulging out elsewhere.
Which is why the industry needs to be in the frontline of this never-ending battle. But I am afraid we will receive numerous reports of the sort for years to come.

Dinosaur Revival

Not too long ago, ATMs were predicted to suffer the same fate as dinosaurs.

With the invention of payment cards of all sorts, increasing usage of cards as a cash substitute, and the introduction of cash back at point of sale, ATMs were predicted to suffer a slow death. Those predictions, however, failed to consider two key aspects of ATMs.

First of all, the incredible utility of cash, which means that cash will never go out of fashion. Lots of people still prefer cash for certain purchases. Some because they do not have other alternative, but most because they have a cash preference. Cash is convenient, full stop. (Ever heard a retailer say “sorry, we don’t accept cash?” Me neither.)

And despite several decades of strong growth in cards, POS terminals and card usage, there are still quite a few purchasing situations where cash is king. Interestingly enough, cash withdrawals have continued to grow in parallel with card usage at point of sale, although growth is showing signs to slow down as markets mature.

Secondly, the predictions failed to appreciate that ATMs are part of an industry. A large number of stakeholders had lots to lose unless they manage to redefine ATMs. Which is exactly what has happened. Distributing prepaid cards through ATMs is a brilliant example of an industry’s survival strategy and ability to extend the life expectancy of ATMs.

Furthermore, given the reduction of bank branches in certain markets, I would argue that ATMs are still quite a cost effective way to provide basic banking services to clients, build brand presence and awareness on the high-street, and gain additional income from new products and services.

And serve those customers who still prefer to pay for many purchases in cash.