Knowing how chip and PIN payments work could be useful for many businesses.
Many people no longer carry cash and prefer to use cashless or contactless payments. Chip and PIN machines can help small businesses make payment more convenient – for them and their customers. They make it easier for people to make purchases, and for businesses to keep on top of profits.
What is chip and PIN?
Chip and PIN is a payment method that requires someone to use their card and enter their Personal Identification Number (PIN) to make a purchase.
Credit and debit cards contain a square-shaped microchip that stores unique information about each transaction. This also helps to make the cards highly secure when making payments.
Chip and PIN was introduced to the UK in 2004 and was made a required feature on all British payment cards from February 2006. By 2015, 78.5% of all retail transactions used chip and PIN.
As well as making payments easier and more convenient, chip and PIN also helps to reduce fraud. Thanks to its introduction, annual counterfeit card losses dropped from £129.7 million to £47.8 million between 2004 and 2014.
How does chip and PIN work?
To make a payment, the customer inserts their credit or debit card into a chip and PIN machine. The card stores data inside its microchip, which the machine reads, and then attaches the total cost of the payment to the card.
When someone enters their four-digit PIN into the machine, this authorises the payment. If it’s correct, the payment is processed.
Encrypted data is then sent from the chip and PIN machine to the customer’s bank. The bank must then confirm that all details are correct for the payment to be fully authorised.
From there, the money should arrive in the business’ bank account within five working days.
What's the difference between Chip and PIN and contactless payments?
Both chip and PIN and contactless provide customers with convenient ways to pay. But what are the differences between the two?
Customers can also download their card data onto their mobiles and make payments without a physical card. It’s estimated that nearly a third of all payments are now contactless in the UK.
Although there are many advantages of contactless, there are some restrictions that mean chip and PIN payments are still needed for businesses. For example, contactless payments are currently capped at £100. This means that any transactions over this amount will need to be made through a chip and PIN terminal.
Also, some providers place limits on the number of times that you can use contactless at a time – usually around five times. You may also need to use chip and PIN when using your card for the first time to activate contactless.
In terms of security, contactless payments use the same technology as chip and PIN. Customers data is encrypted, and details are kept safe and secure throughout every transaction.
What are the benefits of chip and PIN?
There are plenty of benefits of chip and PIN, for both businesses and customers. These include:
- Payments are quick and easy. All your customers have to do is place their card into the chip and PIN reader and enter their PIN to complete their purchase.
- Transactions are secure. Information is encrypted to keep details safe, helping to prevent fraud.
- No need for cash. Customers don’t need to carry cash to make a purchase.
- Added convenience. The speed and simplicity of chip and PIN payments makes them a convenient option. It also reduces queue times and encourages quicker transactions.
- Contactless payments are also accepted. Chip and PIN machines can also accept contactless payments. This offers your customers another convenient way of paying.
- Quick payment processing. Payments will usually be processed and added to your bank account within five working days.
Are there disadvantages?
Although there are plenty of benefits of chip and PIN, there are a few considerations to bear in mind:
- Risk of theft. Theft can occur if someone finds a customer’s PIN and steals their card. However, they can quickly and easily cancel the card to prevent further loss.
- Not all countries use chip and PIN. Despite its popularity, not all countries have adopted chip and PIN devices.
Are chip and PIN payments right for my business?
Whatever the size of your business, chip and PIN machines could help streamline your services, making it simpler for your customers to pay quickly and securely.
According to research, consumers are 63% more likely to shop with businesses that offer their preferred method of payment. By using chip and PIN machines, you could give your customers more choice and freedom when it comes to paying for your goods and services.
Chip and PIN FAQs
Do you ay a transaction fee for chip and PIN payments?
Yes, transaction fees are applicable for chip and PIN payments. They can vary depending on the bank that issued the card and the processing platform that is used. In most cases, Visa and Mastercard set the standard for transaction fees, with the average being around 1%-3%.
How long do payments take to process?
If a payment goes through successfully, it usually takes up to five working days for the money to arrive in a business’ bank account. In most cases, this happens much sooner.
What happens if a chip and PIN payment goes wrong?
If a PIN is entered incorrectly three times in a row, most providers will place an automatic block on the account. This means the card can’t be used and the customer will need to contact their bank to resolve the issue.
This has been prepared by Tyl by NatWest for informational purposes only and should not be treated as advice or a recommendation. There may be other considerations relevant to you and your business so you should undertake your own independent research.
Tyl by NatWest makes no representation, warranty, undertaking or assurance (express or implied) with respect to the adequacy, accuracy, completeness, or reasonableness of the information provided.
Tyl by NatWest accepts no liability for any direct, indirect, or consequential losses (in contract, tort or otherwise) arising from the use of the information contained herein. However, this shall not restrict, exclude, or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.