Capitec Bank and MasterCard International Inc.'s Southern Africa division Tuesday announced a pilot of pre-authorized debit card based on the EMV standard, in the Qwa-Qwa town of Phuthadjitjaba in the Free State province. The new debit card is said to be specifically designed to provide a straightforward, low-cost banking product with easy access to the mass market.
MasterCard says the EMV chip technology behind the enhanced Maestro debit card means that participating retailers no longer need to depend on an expensive 'always online' telecom infrastructure in order to securely accept debit cards. EMV is the global standard that ensures that smart cards issued in one country can be readily accepted by chip terminals worldwide.
At present, in order to accept payment with magnetic stripe cards, retailers have to be online constantly to ensure that transactions are authorized by the banks. As well as being expensive, this requires a reliable telecommunications infrastructure, which is unavailable in many emerging regions worldwide, such as some rural parts of South Africa.
MasterCard states that its response to this challenge is the M/Chip pre-authorized debit solution that Capitec Bank is piloting. The solution reportedly exploits the investment that local banks are making in EMV acceptance infrastructure, enabling Capitec Bank's new cards to work in any chip-enabled terminal displaying the Maestro acceptance mark.
Says Capitec Bank CEO, Riaan Stassen: "In emerging regions, the majority of retailers are unable to have online telecommunication on a continuous basis, making magnetic stripe cards ineffective for both retailers and cardholders. We are now enabling secure, cost-efficient card usage for retailers and consumers, in locations that were previously impractical in this country."
Capitec Bank says its customers will be issued a Maestro card, which, in addition to having a magnetic stripe, comes with a PIN-protected microchip. Cardholders load this chip with a pre-authorized amount of funds from their bank account. Any retail purchases made using these funds do not need to be authorized by the banks at the time of purchase. The chip is also reported to calculate the total amount being spent, and, when the pre-authorized amount has been reached, the cardholder simply needs to reload at any Capitec Bank point of sale machine or branch.
A significant challenge for many local banks has been to convert the estimated two out of three SA consumers who are currently unbanked, into banked customers and payment cardholders.
Commenting on the challenge for SA banks to convert the currently "unbanked" consumers into banked customers and cardholders, Eddie Grobler, senior vice-president and GM, MasterCard Southern Africa, says: "Offering new banking services to potential customers often requires a solution that drives down risks and costs. Capitec Bank is the world's first bank to launch MasterCard's pre-authorized debit solution with a secure offline processing capability that directly addresses these requirements."
The main goal of the pilot, according to Stassen, is to understand customer acceptance, rather than a trial of the technology itself. Capitec Bank says the card has already completed rigorous controlled testing at its headquarters in Stellenbosch. Stassen believes it to be key that the card is an uncomplicated product, for the bank, retailers, and most importantly, for cardholders.
"Pre-authorized debit enables Capitec Bank to extend debit card services to a broader audience at a lower cost," says Grobler. "It also brings the advantages of debit cards to more locations in SA than ever possible before, and facilitates the introduction of previously unbanked South Africans into the banking system," he concludes.