Eftpos fights fraudsters

By PETER GRIFFIN

Retailers will have to replace about 35,000 eftpos terminals by the end of next year in a move to crack down on fraud.

The larger of the country's two eftpos network operators, ETSL, has set a schedule for retailers to adopt international standards for electronic payments developed by the main credit card companies and known as EMV (Europay, Mastercard, Visa).

About 35,000 older terminals will have to be replaced by January 2006, and another 50,000 terminals will be replaced by 2008.

Local eftpos terminal suppliers such as listed companies Provenco and Cadmus will benefit from sales of EMV-compliant terminals.

The change-over would be one of the biggest technology upgrades retailers had faced in years, and would be a "double-edged" sword for retailers, said Retailers Association chief executive John Albertson.

Once the EMV terminals were in place in numbers, liability for fraudulent credit card transactions would shift to card issuers such as the major banks and away from retailers.

Albertson said most eftpos terminals were leased on three-year terms at a cost to the retailer of $15 to $20 a week.

But the chief executive of Provenco Payments, John Tait, said merchants would have to get moving on replacing terminals to avoid a rush towards the end of next year and the prospect of their existing terminals not working from early 2006.

He said the current rate of conversion to EMV terminals was still low.

"That's 1750 [terminals required] a month. The industry isn't shipping that level, probably a third of it.

"You won't be able to suddenly do 10,000 next November or December."

The Retailers Association would start a campaign in May, and individual banks such as Westpac were already writing to retailers.

Eftpos users' cards will increasingly have digital chips in them, although the less secure magnetic stripe will remain initially for compatibility with older machines.

The chips can carry more information than stripes about the card user and recent transactions, and will eventually eliminate card "skimming" where a card reader is used to copy credit card details from a card's magnetic stripe.

The details can then be loaded on to a blank card or used to make "card not present" transactions.

The banks would increasingly give customers hardware to use with their home PCs to verify chip-card transactions over the internet. The ANZ already has chip cards, but only around 2000 are believed to be in use.

Chip-cards would enable loyalty programmes to be bundled on to credit cards, and would allow "off-line" transactions, such as loading cash or credits on to cards.

ETSL spokesman Darryl Roots said the change-over would happen gradually and was being led by the EMV Advisory Group, made up of banks, credit card companies and industry and technology bodies.

"No change of that magnitude is going to be popular with everyone but no one likes fraud and it's on the increase," he said.

For ETSL, which turned a $4 million profit on revenue of $34.6 million in the year to March last year, the changes would not bring about a big increase in business.

"It's a huge cost, but it's part of being in this space."

Including the smaller eftpos network run by ANZ, about 100,000 terminals are due for replacement over four years.

Worldwide, about 40 million terminals will have to be replaced.