After a year of expectation, Absa announced recently that it has become the first bank to issue chip-enabled cards to clients. Although the bank only went public with the announcement this week, it began issuing the cards in March. So far, there are about 1Â 000 chip-enabled debit cards in circulation, according to Walter Volker, head of group payment systems at Absa.
Chip technology allows a PIN-protected microchip the size of a 10c coin to be embedded in a debit or credit card. The chip is encrypted and the information cannot be copied, unlike the current magnetic stripe that allows criminals to copy information from the card using a small hand-held device. The information is then used to clone cards.
Chip technology has been introduced in both the United Kingdom and France in an effort to combat cloning. According to Nick Essame of Visa, the UK has seen a marked decrease in card fraud since the introduction of chip-enabled cards, or smart cards, in February last year.
However, the UK did see a momentary increase in card fraud as the switch to the chip was made in a relatively short space of time and most cardholders were issued with new cards about the same time. This created a feeding frenzy for fraudsters at the post office. But South African banks will phase in the chip cards over a far longer period of time.
According to Volker, the first phase will see debit cards rolled out across different market segments. Credit card implementation will only begin in the third quarter of this year. Clients will be issued with new cards when their current cards expire.
Because of the gradual implementation, Volker estimates that only 50Â 000 cards will be issued by the end of the year and it will take about three years to have all 8,3-million cards chip-enabled.
The staggered roll-out will allow cardholders to become familiar with the process and merchants to learn how to process chip cards. Signatures will no longer be sufficient to identify credit card holders and they will have to enter their PINs when making a purchase. Debit cardholders are already used to a PIN-based transaction process.
Although it will take a few years before every card has been converted, cardholders will be able to ask local branches to replace their cards with smart cards.
Essame recommends that anyone going abroad apply for a debit card before travelling. Essame says magnetic stripe cards are still valid in all countries, but merchants are not always informed about how to process them.
In contrast, South African users will have to be taught how to use smart cards.
Volker says the ultimate goal is to use the additional features of chip technology for multiple account usage. This would enable one card to hold information normally held on debit, credit and even store cards. The aim is to have the application operational by 2010, when it could be loaded with pre-paid fares for various transport systems.