New cards, please
Fecha Lunes, junio 07 @ 11:53:18
Tema Pago Electrónico :: e-Payment
| With credit card fraud rising at record rates, banks across Europe, Asia, and the Middle East are promoting "smart cards" as a means of boosting card security. But take-up has been hampered in many places by retailers who have been reluctant to upgrade their point-of-sale (POS) equipment to accommodate the more sophisticated plastic. This reluctance, however, is likely to fade rapidly.
Credit card issuers are now bent on shifting the full liability for fraud arising from the use of magnetic stripe cards to the retailers themselves.
Smart cards, which are embedded with a small microchip, are activated by a customer-specific PIN number rather than by the signature verification method used with magnetic stripe cards. Already in use in hundreds of locations in Asia and Europe, the smart card has proven to be much more secure than the magnetic stripe card. With credit card fraud increasing by more than 20% a year in recent years, credit card companies and banks are no longer willing or able to absorb the losses created by credit card fraud. For example, EMVCo, a consortium of Europay International, MasterCard and Visa International, has now set January 1, 2006 as the date after which it will no longer accept liability for magnetic stripe card fraud. EMV has already issued guidelines for the new cards.
Moving quickly
Some countries are asking retailers to move more quickly. In the UK, the date for this shift in liability is now January 1, 2005. In addition to retailers, UK credit card companies are also targeting cash machine operators, giving notice they will no longer accept liability for card fraud at ATM machines after the end of this year. MasterCard International recently predicted that French banks and retailers will switch over to the new technology entirely by the end of next year, in line with the UK. France’s shift has been aided by the recent decision of Societe Generale to begin issuing the cards to all its customers. In Asia, Bank Negara, Malaysia’s central bank, has given all financial institutions until the end of this year to migrate their cards to the EMV standard. Malaysia, set to be the first country in Asia to complete the migration, is expected to be followed quickly by Thailand, Hong Kong, Vietnam and Indonesia. In the Middle East, Mashreqbank of the United Arab Emirates recently issued smart cards to all its customers, as well as updating the POS equipment at over 1,000 shops, restaurants, hotels and retail outlets. South Africa is also expected to convert to smart cards by the end of the year.
Smart card sales, as a result, are expected to expand rapidly, topping 400m worldwide in the next few years. The new cards cost about three times the price of the magnetic stripe card to produce, but its manufacturers claim the premium is deserved as the cards cannot be counterfeited. MasterCard estimates that the level of credit card fraud will be cut to a third of its current levels worldwide when the magnetic stripe card is no longer in use. It is expected that full adoption of chip cards globally should take place by 2010 at the latest
Slow in the USA
Currently, the US lags behind Europe and Asia in adopting smart cards. This is because it is still relatively inexpensive for retailers to check a credit card’s validity by contacting a customer’s bank for a clearance while he or she is still on the premises. As a result, the expense of upgrading POS equipment to accommodate the new cards doesn’t seem worth the bother to most merchants. A number of recent developments, however, are likely to change this stance. The first is the widespread growth of Internet shopping and the difficulty of validating a customer’s card via the Internet. The second reason is the growing use of mobile phones for making purchases, which rely on smart card technology.
US retailers are expected to warm to the technology for another important reason. Smart cards can also provide valuable information about customers. Specifically, the microchips in the cards allow banks and retailers to track customer purchases and then create targeted offers for individual cardholders or develop a range of reward programmes based on how many times a customer shops in a particular store. UAE’s Mashreqbank, for example, already runs a scheme in which cardholders earn discounts of between 5-15% on repeat purchases at those retail outlets that accept its new smart card. Merchants are pleased with the scheme, according to the bank, as it allows them to reward loyal customers with a minimum amount of administration or cost. At the same time, smart card technology is expected to boost web-based retailers no matter where they are based. This is because banks and credit card companies are gearing up to sell small PIN-reader terminals for home use, which will allow individuals to use their card securely from home.
As for customers, most banks expect little resistance to the new cards. For example, cardholders will no longer have to retain credit card slips as proof of purchase, as all records of their purchases will be stored electronically. They will also have their credit limit information recorded on their cards so there will be no need for payment authorisation delays. One possible area of conflict, however, is privacy: customers may not want their banks to store too much information on their spending habits, or indeed use that information without their permission. But these concerns seem minor when compared with the improved security. Retailers who choose to adapt to smart cards before they are forced to are sure to reap a return on their investment.
Economist Intelligence Unit
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