The UK is in the midst of a massive upgrade of its card payments infrastructure from magnetic stripe based signature cards to smart cards authenticated using PIN's. Richard Rolfe reports on this change.

The main reason for the change is the dramatic rise in card fraud. Fraud levels are estimated to have tripled in just six years, according to the London-based Association for Payment Clearing Services (APACS), the British banking industry trade group (chart, page 24). And some observers believe they could nearly double again in about three years. Experts attribute the higher losses to more Internet fraud, application fraud, and counterfeiting.

As the article points out, rule changes provide the economic incentive for merchants to upgrade their POS terminals. A 10-basis point reduction in card acceptance fees coupled with a shift in responsibility for liability to merchants in the event back-level POS acceptance devices are used both provide the business case for merchant adoption.

Linda Punch reports on how frustrated online merchants are coming together to attempt to develop their own solutions to online fraud.

It‚s understandable why Web merchants are looking for relief. A 2002 Gartner Inc. survey found that fraudulent transactions comprise 1% of total online transactions, 15 times higher than fraud in the physical world. Online retail sales increased 27% to $45.6 billion last year, according to the U.S. Census Bureau. And an e-merchant‚s losses can extend beyond the actual cost of the product or service charged to a fraudulent card. Because they operate in a card-not-present environment, e-merchants also are subject to the card associations‚ highest interchange rates, the portion of each transaction paid by acquirers to issuers in return for guaranteed payment. Visa‚s interchange rate for e-commerce is 1.80% of the sale plus 10 cents. That compares with Visa‚s card-present retail rate of 1.39% plus 10 cents. Under MasterCard‚s interchange rates, Internet merchants pay 1.90% plus 10 cents, compared with 1.40% plus 10 cents for card-present retail transactions.