Personal identification number: Meaning, Criticisms & Real-World Uses

What Is a Personal Identification Number?

A personal identification number (PIN) is a numerical code used to authenticate a user when accessing a system or completing a financial transaction. Serving as a secret key, a PIN provides an essential layer of security within the broader field of financial security. It is typically associated with a payment card, such as a debit card or credit card, and is required to verify the identity of the account holder. PINs are fundamental to modern electronic commerce and banking, ensuring that only authorized individuals can access funds or sensitive information.

History and Origin

The concept of the personal identification number originated with the advent of the automated teller machine (ATM). In 1966, Scottish inventor James Goodfellow developed the PIN system to secure cash ATM machines. This innovation was patented and was crucial for banks like Barclays, which launched the first ATM in London in 1967. Goodfellow's system allowed for the secure, machine-readable encryption of a card, linking it to a personal code to authorize cash withdrawals.¹⁴ The introduction of the PIN facilitated convenient access to banking services outside traditional bank hours, marking a significant step in the evolution of consumer banking.

Key Takeaways

A personal identification number (PIN) is a numerical code used for authentication in electronic transactions.
It serves as a critical component of data security by verifying the user's identity.
PINs are most commonly used with debit and credit cards at ATMs and points of sale.
Choosing a strong, non-obvious PIN and keeping it confidential are vital security measures.
While convenient, PINs have limitations in security, necessitating additional authentication methods in some contexts.

Formula and Calculation

A personal identification number itself does not involve a financial formula or calculation in the sense of an investment metric or valuation. Instead, its "calculation" refers to its generation and validation process within secure systems. PINs can be randomly generated by the issuing institution or chosen by the user. For system-generated PINs, a bank might use cryptographic processes involving the primary account number (PAN) and an encryption key to create what is sometimes called a "natural PIN." During validation, the system regenerates the PIN using the same method and compares it to the entered PIN to confirm a match. This process is complex and occurs within secure hardware security modules (HSMs) to protect against unauthorized access.

Interpreting the Personal Identification Number

A personal identification number is not "interpreted" as a numerical value in the way a financial ratio or stock price might be. Instead, its interpretation lies in its binary function: it either grants access or denies it. A correct PIN verifies the identity of the user, confirming they are the legitimate account holder authorized to perform the requested financial transaction. An incorrect PIN, conversely, signals a potential unauthorized access attempt, leading to a transaction denial. The "strength" of a PIN is interpreted by how difficult it is to guess or brute-force, with longer, more random sequences being more secure. The system's response to multiple incorrect PIN entries (e.g., locking an account) is also part of its security interpretation.

Hypothetical Example

Consider Sarah, who wants to withdraw cash from an automated teller machine. She inserts her debit card into the ATM. The machine prompts her to enter her four-digit personal identification number. Sarah, having memorized her unique PIN, enters "7890." The ATM's system takes this entered PIN and securely sends it to her bank for verification. The bank's system compares "7890" against the securely stored PIN associated with Sarah's debit card. Upon successful verification, the ATM interprets the match as legitimate authentication and allows Sarah to proceed with her cash withdrawal. If Sarah had entered "1234," the system would have denied the transaction, likely prompting her to re-enter the correct PIN or, after several failed attempts, temporarily locking her card to prevent fraud.

Practical Applications

Personal identification numbers are integral to various aspects of modern financial and personal security:

Banking Transactions: The most common use of a personal identification number is for cash withdrawals at ATMs and purchases at point-of-sale terminals. When using a debit card, a PIN authorizes the direct transfer of funds from a bank account.¹³
Online and Mobile Banking: While often supplemented by other methods, PINs can be used as part of the login process for online banking platforms or mobile financial applications, particularly for confirming specific transactions.
Card-Not-Present Transactions: For certain payment systems, especially online, a PIN (often called a "SecureCode" or "Verified by Visa" password) can be required as an extra layer of security, though CVV codes and other methods are more common.
Digital Wallets: When using a digital wallet on a smartphone, a PIN or biometric authentication often secures access to the payment cards stored within.
General Security: Beyond finance, PINs are used for accessing mobile phones, securing alarm systems, and controlling entry to secure facilities, demonstrating their broad application in identity verification.

Financial institutions, such as FirstBank UK, provide specific guidelines for securing debit cards and PINs, emphasizing the importance of guarding the PIN "like you guard your cash" and never writing it down or sharing it via unsecure channels.¹² The Federal Trade Commission (FTC) also provides guidance for businesses on data security, which includes protecting sensitive information like PINs from various threats, including "PED skimming" attacks where PIN entry devices are tampered with.¹¹

Limitations and Criticisms

Despite their widespread use, personal identification numbers have several inherent limitations and criticisms regarding their security. A primary concern is their limited complexity; most PINs are typically four to six digits long, making them susceptible to brute-force attacks or easy guessing if users choose common sequences like "1234," "0000," or birth dates.⁹, ¹⁰ This limited complexity stands in contrast to longer, alphanumeric passwords that can offer significantly more permutations.

Another criticism is the human element of choosing and managing PINs. Users often prioritize memorability over security, leading them to select easily guessable numbers or reuse the same PIN across multiple services.⁷, ⁸ This practice greatly increases the risk of fraud if one PIN is compromised. Furthermore, PINs are vulnerable to "shoulder surfing," where an unauthorized person observes the user entering their PIN.⁶

The increasing prevalence of contactless payments and online transactions has also reduced the frequency with which consumers actively use their physical card PINs, potentially leading to forgotten PINs and reliance on less secure alternatives or exposing cards to "card present" fraud if lost or stolen.⁵ Critics argue that the traditional PIN system is becoming outdated for robust authentication in an increasingly digital world, advocating for more advanced security measures like multi-factor authentication to enhance overall data security.³, ⁴

Personal Identification Number vs. Password

While both a personal identification number (PIN) and a password serve as secret credentials for authentication, they differ primarily in their composition and typical application. A PIN is generally a numerical code of a fixed, shorter length (e.g., four to six digits), most commonly used for financial transactions involving physical cards, such as at ATMs or point-of-sale terminals. Its design prioritizes quick entry and memorability for frequent, physical interactions.

In contrast, a password is typically an alphanumeric string, often allowing for a much greater length and complexity, including a mix of letters, numbers, and special characters. Passwords are predominantly used for accessing online accounts, software, and systems, where typing a longer string is more feasible than at a physical terminal. The greater complexity of passwords generally makes them more resistant to brute-force attacks compared to the shorter, numerical constraints of a PIN.

FAQs

What should I do if I forget my personal identification number?

If you forget your personal identification number, most banks offer ways to retrieve or reset it. You can often view your PIN securely through your bank's mobile app or online banking portal after verifying your identity. Alternatively, you might be able to request a PIN reminder to be sent to your registered address or visit a bank branch. Some banks also allow you to change your PIN at an automated teller machine.¹, ²

How can I make my personal identification number more secure?

To make your personal identification number more secure, avoid using easily guessable sequences such as birth dates, consecutive numbers (e.g., 1234), or repeating digits (e.g., 1111). Instead, choose a random combination of numbers that is unique to you and not easily associated with personal information. Memorize your PIN and never write it down or share it with anyone. Always shield the keypad when entering your PIN in public to prevent "shoulder surfing." Adhering to these security measures helps protect your accounts from fraud.

Can my personal identification number be stolen?

Yes, your personal identification number can be stolen or compromised through various methods. These include "shoulder surfing" (someone observing you enter it), "skimming" (devices illegally attached to card readers to capture card data and PINs), or through phishing scams where fraudsters trick you into revealing your PIN. Data breaches at institutions can also expose PINs if not securely encrypted. If you suspect your PIN has been compromised, immediately change it and report any suspicious activity to your financial institution to prevent identity theft.