A year after Brazilians started converting their signature-based cards to ones that use personal identification numbers, one company that has been involved in the switch, MasterCard International, says the PIN-based cards have proven popular with banks, and that other countries are eyeing a similar change.
Brazil, where credit cards are just starting to catch on, has been considered something of a test market for smart cards. Merchants have begun installing chip-enabled point of sale terminals, banks have begun converting credit and debit cards to chip cards, and the infrastructure to support PIN-based smart credit card payments is being built.
Of the 13.5 million cards MasterCard has issued in Brazil, 240,000 are smart cards.
"Brazil is one of the first markets that from scratch is doing an end-to-end migration" to chip cards, said Randall Shuken, a MasterCard senior vice president for Latin America e-business, in an interview last month. "France did it a long time ago with its own standards. The U.K. is doing it in pieces, but Brazil is really the first country to hit it en masse."
Brazil is a particularly ripe location for PIN-based credit card transactions, because it has a high incidence of credit card fraud. But Mr. Shuken said that there has been interest in PIN-based cards not only in other Latin American countries - including Mexico and Venezuela - but also in countries that do not have particularly high fraud rates, such as Australia, South Africa, and Canada.
PIN-based debit cards are prevalent in the United States, but Mr. Shuken predicted that PIN-based credit cards would not take off here unless smart cards became common and more merchants installed PIN pads. Both Visa U.S.A. and MasterCard have been emphasizing the use of signature-based debit cards in the United States.
MasterCard has been paying a lot of attention lately to Brazil, a market it entered fairly recently. In a press statement at the beginning of the year, the company said that it invested about $30 million in Brazil last year. At the end of last year MasterCard said it had added 35 financial institutions there (which had previously issued only Visa cards) to its network.
In June, MasterCard said that its Latin American and Caribbean issuers expected to convert more than 50 million credit and debit cards to chip by 2005, and that Brazil was the country that had made the most progress.
There was skepticism about PIN-based transactions in the past, because some argued that "people would not remember their PIN, and they wouldn't be able to use their card," but now "practically everyone uses PIN for their debit cards," Mr. Shuken said. "Consumers overwhelmingly said that they prefer using PIN, that they think that it gives them a sense of more security, and they feel it's more convenient."
In October and November, MasterCard surveyed 450 people in Brazil's major urban areas, and 59% said that they would prefer using a credit card with a PIN rather than one with signature verification. And 63% of those polled said that if their PIN-based credit card were lost or stolen, they would feel more secure knowing that the card could not be used to make fraudulent purchases before they could notify the bank of the loss.
Seventy-seven percent of those polled said that PIN verification is faster than having to sign a receipt, and 72% said a PIN-based card was easier to use.
"Putting the PIN on credit almost completely eliminates the risk from counterfeit verification," Mr. Shuken said. "The other thing that you can prevent is the unauthorized use of the card, and you can also reduce your disputes because the PIN is more authoritative than a signature."
MasterCard is not pushing PIN credit onto Latin American countries, Mr. Shuken said. Bank associations in Brazil, Mexico, and Venezuela all indicated their interest in PIN credit, "so we realized it was a trend, not just an isolated incident," he said. "It's bubbling up from the markets, and now we're sort of coalescing something that we will assist."
James L. Accomando, the president of Accomando Consulting Inc. in Fairfield, Conn., said PIN-based credit is available in the United States exists, but only when consumers try to draw money against their credit card lines at automated teller machines.
These transactions are relatively infrequent, in part because credit card companies "know that if you're actually that desperate to take out money on your credit card, then there's high risk there, so they price against the risk," he said. "You can pay 18%, 22%, and you're charged the second you take it out."
Jerome Svigals, a consultant and director of the Smart Card Institute in Redwood City, Calif., said that the use of PIN-based credit cards makes sense, because it lowers fraud, and people are accustomed to using PINs.
"Do you know what's wrong with signatures?" Mr. Svigals asked. "No. 1, it takes an expert to decide if it's legitimate. No. 2, people can watch you do it. As soon as you write it on something, somebody can take that and go copy it."
Mr. Accomando said that while PINs are more secure than signatures, there is room for improvement. "PINs and passwords can be easily violated," he said. "PIN combo password, a little tighter. PIN, combo password, something else like an ever-changing number, which they call tokens, is pretty much airtight."
But Mr. Svigals said that tokens are "one more expense, and have not been accepted anywhere in the world on anything that has to do with financial transactions. Anytime you announce anything in this industry, there are 20 brilliant guys who have an alternative. That doesn't make them right, and that doesn't make them effective, and that doesn't make them implementable."
Visa Brasil said it has had PIN-based debit cards since August 1999, and that it hopes to convert 1.5 million to 2 million of its cards to chip cards by yearend.
