Smart cards will take secure electronic transactions to the next level

Without a doubt 2004 is going to be a landmark year in the history of the smart card. While it will take years to realise the full potential of the technology, several important steps forward will be taken over the coming months. Of these, the use of the smart card for electronic financial transactions will be among the most significant.Barclaycard has already announced that it is launching a six-month pilot scheme to test the use of smart cards for e-transactions. Other banks and card issuers are sure to be watching the results of this trial very closely as it is crucial for demonstrating that the smart card can genuinely become the de facto tool for authenticating all financial transactions. The expectations are that in addition to the use of smart cards for payments in the physical world, the widespread deployment of unconnected smart card readers will open up the potential for smart cards to become personal security modules. As such they will be used to authenticate all channels of transaction, be it physical, online, telephone or commerce through interactive TV.

The security benefits are clear to see. The inclusion of a smart card in every financial transaction will add a crucial second layer of authentication. This two-factor authentication process of something you have as well as something you know should reduce fraud. Given that the EMV smart card rollout is predicted to dramatically increase Card Not Present (CNP) fraud, the parallel introduction of unconnected readers for smart card transactions is very timely.

The rollout of unconnected smart card readers
In terms of the technology behind the unconnected smart card readers, it is the recent introduction of a common standard that is the important innovation. Earlier this year APACS, in association with MasterCard, released specification standards for unconnected smart card readers. This has allowed leading smart card reader manufacturers to offer products for mass consumption at a commercially viable cost.

At the moment the maximum level of security available to consumers is user and password authentication, which is already seen as being inadequate for securing financial transactions. It is anticipated that over the next two or three years some, if not all, card issuers will wish to offer stronger levels of authentication based around EMV smart cards. To do this they will need to provide unconnected smart card readers for customers wishing to make e-transactions. With £1.17bn worth of online shopping expected to have been done in Christmas 2003 in a market that has grown by over 40% over the year, banks have added incentives to provide increased security for such transactions. This is especially timely as on-line credit card fraud has now topped £100m a year, an increase of 33% over a two-year period. The EMV migration is expected to push this value even higher as a lot of the annual £454m worth of credit card fraud will shift to CNP transactions.

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Source: http://www.thales-esecurity.com