That won't do nicely

After many delays, the public trial of chip and Pin-enabled credit and debit cards in retail outlets finally got underway in Northampton on May 19, and few disasters or surprises have occurred so far.

Already 100,000 people are using newly issued cards in 500 shops, and by the end of the trial in August both these numbers are expected to have doubled. The retailers range from the largest, such as Safeway, to the smallest, like record store Spin a Disc.

Matt Hunt, implementation director at the Programme Management Office, the independent body coordinating chip and Pin implementation, says the public has adapted well to the switch from signing paper slips to entering a four-digit Pin when paying for goods.

"We have been pleasantly surprised by the positive reaction from both retailers and the public. There was enthusiasm before we started and this has been borne out during the trial," says Hunt.

This bodes well for January 1 2005, the date that liability for card fraud switches from the banks to the retailers, because by then all businesses throughout the UK should be accepting chip and Pin cards. As an example of the scale of the problem and the likely bill that non-compliant retailers could face: card fraud amounted to ?424.6m in 2002, according to the Association for Payment Clearing Services (Apacs), and it predicts it could reach ?800m by 2005.

So who is involved in the trial? There are a number of large retailers involved, no doubt helped by the banks and credit card companies providing them with cash incentives and opening negotiations on their existing transaction charges. Many smaller retailers are also up and running because they predominantly operate tills leased from their banks and these will be upgraded to accept chip and Pin at the banks' expense.

What are thinner on the ground are retailers that have between 50 and 1,000 self-owned tills, and those smaller operators that own their own terminals. There is great concern that they are failing to plan for chip and Pin and that it places them in a potentially dangerous position for when we reach January 2005.

They are "conspicuous by their absence" in Northampton, says Andy Cummins, marketing director of the IT solutions provider Wincor Nixdorf, that is working with Tesco to implement its chip and Pin solution. "There is not a great deal happening in the mid-tier," he says, "which is a bit of a worry at the moment as there is no simple solution and it is a lengthy cycle to implement."

Russell Willcox, managing director of hardware provider and systems integrator Box Technologies, that works with retailers including Whittard of Chelsea and Poundland, agrees. He regards the situation as "frightening" and believes that many of the smaller retailers are "wondering what the hell is going on and are hoping their terminal suppliers will sort it all out for them".

Tim Barton, retail systems manager at fashion retailer River Island, which operates 800 tills, warns that this thinking could be very dangerous. He believes that "vendors will only have a limited capacity and, more importantly, limited experience to be able to go on site to all of their customers".

River Island is an exception among its mid-sized peers as it is undergoing final testing with its application provider, JDA, and credit card software vendor, Retail Logic, and intends to join the Northampton trial in late-June. Despite the progress made, Barton warns that it is a complex task to find the best chip and Pin solution for your business.

He advises all retailers to start conversations with their bank immediately and also engage with their software and hardware vendors as soon as possible. "My bottom line advice: get as much help, as soon as possible," he says. What is certain is that there is going to be a big demand for hardware, software and advice as the January 2005 deadline draws closer. Barton says that most of these retailers will have to "fight for support services as so many will be in the same position" and "manufacturers only have a limited production capacity and there are many retailers who will require kit".

Around 60% of the roughly 800,000 Electronic Point of Sale (EPoS) terminals in the UK are retailer-owned and all need to be made compliant. Apacs forecasts that the total cost to retailers to implement chip and Pin will amount to nearly ?350m.

As well as the horrendous cost to retailers, it is also recognised that there is not a simple one-size-fits-all solution available. It depends on the configuration of the individual retailer's business and its existing till infrastructure - both hardware and software.

For most small and mid-sized non-grocery retailers, an integrated unit that comprises a Pin pad and card reader that accepts both chip-enabled cards as well as magnetic stripe cards is the recommended route. This gives the greatest flexibility because the devices will continue to allow the acceptance of magnetic stripe cards until they have been fully replaced by chip and Pin cards. Such devices can land the retailer with a bill of at least ?300, and on top of this are the costs of training staff and those other extras that always seem to enter the IT equation.

Convenience and off-licence chain Bargain Booze highlights the difficulties faced by many retailers. Willcox says the company's 1,000 terminals did not have enough ports to accept a chip and Pin hardware device so it was faced with either entirely upgrading its hardware or investing in port expansion boxes. Even though it has chosen the latter option, Willcox says it still faces a bill of ?500,000 to implement chip and Pin.

John Mustard, general manager of Saltire Taverns, operator of seven pubs and bars in Scotland with a total of 34 tills, agrees that there is no getting away from the cost of chip and Pin, and that all bills will have to be paid for by the retailers.

Like the rest of the hospitality industry, he faces a much bigger chip and Pin task than his counterparts with shops. The issue of how to accept a chip and Pin payment at the customer's table is a very difficult one compared with stores where customers have to queue at a till.

"I don't think anybody actually knows how it is going to work. And although the industry is becoming aware of chip and Pin, I don't think they know how soon the January 2005 deadline will be here," says Mustard.

Despite the impending, hefty threat of fraud liability, a number of retailers are still choosing to ignore the risks. Barton knows of one major clothing and footwear retailer that has chosen to do nothing. "This is very dangerous. Fraudsters will soon suss out who is chip and Pin-enabled and who is not, and fraud will simply migrate to those who are unprepared," he warns.

Card fraud is also widely expected to migrate online where chip and Pin has no effect and where retailers have full liability for any fraudulent transactions. This is causing great concern for the Federation of Small Businesses (FSB). It believes that even before any migration caused by chip and Pin, fraud is having a detrimental effect on many of its members. "We have evidence that they are getting their fingers burnt, and are pulling back from e-commerce," says David Bishop, parliamentary officer for the FSB. Chip and Pin simply adds to this problem.

Various solutions involving small, hand-held card readers that replicate the chip and Pin technology are currently being tested by Apacs, but are still some years away from being in the hands of the consumer. For now, retailers have enough on their minds bringing chip and Pin into their stores and most know that failing to act will likely turn this into a painful headache.