Switch to chip card to pick up speed


THE going will be rough for both payment card brands MasterCard and Visa to convince local banks to migrate to chip-based credit cards by 2006.  

Jeff Portelli

Issues at hand include high initial investment for banks in terms of number of cards and terminals and lack of necessary infrastructure (cards and terminals are not migrating at the same speed).  

According to Jafizwaty Haji Ishahak, regional smart card analyst at Frost & Sullivan, all local banks are pressured by Visa and MasterCard to meet EMV standards for global operability (technical specifications developed jointly by Europay International, MasterCard Inter- national and Visa International).  

As of last year, a bank needed to fork out RM15,000 to upgrade a terminal while an additional RM40,000 was required to switch to a new chip-based terminal, she revealed.  

She said that Bumiputra-Commerce Bank had allocated RM40mil last year to enhance its ATM systems, hardware and cards to chip-based technology. 

“Bank Islam Malaysia Bhd has launched its chip-based credit card (EMV compliant) last August. Back then, they have already rolled out about 12,000 such cards. I expect other banks to follow suit,” she said.  

Jafizwaty projected that by 2006, about 62% of credit cards issued would run on chip. The remaining 38% credit cards would eventually migrate to chip-based cards but there was no projected timeline given.  

On the banks' readiness for chip-based credit cards, she believes Malaysia is next after Taiwan.  

“Key drivers for national migration to chip-based cards in these two countries are fraud reduction and competitive pressure to provide value-added services to their clients through benefits of smart cards. With the shift in liability expected to happen by 2006, it will further speed the migration process by the banks,” she added.  

In 2001, credit card fraud in Malaysia amounted to RM42.2mil.  

June Seah

Visa International Asia Pacific senior manager (South-East Asia) June Seah noted that Visa had approved a regional fund of US$25mil in October 2001 to be spent over seven years to help overcome member and vendor readiness barriers.  

“The chip investment has been allocated to support a range of regional initiatives that will benefit Visa card-issuing banks, acquiring banks, retailers, technology providers and consumers. The goal is to increase member readiness for EMV chip issuance and acquiring.  

The initiatives included training programmes for banks, vendors and industry partners, enhancement of EMV testing facilities and services, and support to vendors to increase their range of EMV products and services,” Seah told StarBiz.  

Visa will dedicate chip specialists based in Malaysia, backed by a regional team of 30 experts to assist its members in the smooth transition. 

“In Malaysia, the need to combat rising fraud will be the driver for EMV migration. We are working with all banks in Malaysia and several an- nouncements are expected very shortly. Several banks will issue Visa EMV cards and deploy Visa EMV terminals this year,” Seah said. 

So far, more than 10 million Visa EMV cards have been issued in the Asia Pacific and over 70,000 EMV point-of-sale terminals have been deployed in eight markets regionally. 

Recently, it launched the OneSMART MasterCard programme in Malaysia, the first of its kind in South-East Asia, offering member financial institutions a myriad of technological solutions for smart card migration.  

MasterCard said a number of technology vendors would be supplying smart cards in support of its new US$1.99 multi-application smart card programme. 

With the 33% price cut from the US$2.99 smart card programme it first introduced in December 2000, MasterCard sees banks would accelerate the migration to chip-based smart cards.  

“With the new price, it would provide our members with greater technology choices, support and critical flexibility they need to launch a successful smart card programme. This will certainly accelerate the migration of payment cards to multi-application smart cards in the Asia Pacific,” said Jeff Portelli, senior vice-president (product delivery) at MasterCard International (Asia-Pacific region) recently during its annual performance media briefing in Singapore. 

He told StarBiz that MasterCard was now talking to six banks and optimistic they would get into action soon.  

Portelli commented its business risk would be meeting demands this year, taking into account the probability that all six banks would start its migration process simultaneously.  

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