Banks study business case for microchipped cards

Australian urgency is not reflected in New Zealand

While Australia is powering ahead to adopt chipped credit cards, New Zealand could be left waiting for better security.

Iain Jamieson, Visa International’s New Zealand country manager, says a decline in credit card fraud here means banks are looking for different drivers to justify a change.

“The banks are all actively looking at the business case for moving to chip technology,” Jamieson says.

“The main driver in the rest of the world is fraud, but here we’ve seen a decrease in fraud.”

Jamieson says New Zealand’s use of PIN numbers on credit cards means we already have stronger protection than many countries that rely on a magnetic strip plus a signature to verify transactions.

In Australia, Visa and MasterCard are preparing to bankroll multimillion-dollar marketing campaigns by the banks for the rollout of new card technology that will revolutionise everyday transactions.

This month, Westpac will join the ANZ Banking Group in adding a computer chip to its credit cards, as part of the biggest overhaul of consumer cards since the magnetic strip replaced paper vouchers in the 1970s and ’80s.

Commonwealth Bank of Australia is also expected to make a smartcard announcement, when it hands down its annual results this week, and the Australian Payments Clearing Association is considering an industry-wide adoption plan.

The smartcard technology is expected to further reduce branch transactions because the new computer chips are capable of storing many more products in addition to the standard credit account. This will allow banks to preload the cards with details that can then be activated remotely.

It will also allow consumers to use a numeric code, to safeguard transactions at point of sale, removing the need to sign for credit-card purchases.

New product offerings being considered by the major banks include retailer loyalty schemes; prepaid accounts, which can be used instead of cash for small transactions such as bus tickets; and pre-approved credit, so customers could increase their limits without heading back to their bank.

The new chips, known as “Europay Mastercard Visa” (EMV) chips, are also a starting block for mobile banking, because they can store the encoded digital certificates needed to authenticate transactions that are made remotely.

Security may not yet be enough of a concern to create a business case locally, Jamieson says. But the case for change is strengthened by the fact that 60% of point-of-sale terminals deployed in New Zealand are already chipped card-ready. That will reduce the cost of transition.

Jamieson says that as other countries move to EMV technology, there is also a danger of “fraudulent migration”. Fraudsters may see New Zealand’s system as a soft touch once Australia and other countries shift to chipped cards. Jamieson says this is exactly what happened when Malaysia adopted chips: fraudsters targeted Thailand instead.

“Fraud has to migrate elsewhere,” he says. “My personal belief is we should be future-proofing our payment technology now.”

In Australia, Visa and Mastercard are using a variety of lures, including contributions to marketing campaigns, to encourage the major banks to adopt the new smartcard technology.

Visa has also cut transaction fees for retailers using the new technology. Merchants who qualify for the recently launched alliance programme will pay 25% less from October, but they have to commit to have smartcard-ready terminals by January 2009.

“When we find the right parties who are equally excited about it, we will work together co-operatively and invest co-operatively to get a good outcome,” says Visa’s general manager, Australia and New Zealand, Bruce Mansfield.

— Emma Connors reports for the Australian Financial Review

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