Banks bet on chip-based cards to prevent frauds

To avoid losses from credit card frauds, banks are working towards better prevention measures. The latest is — chip-based cards. The difference in such cards is that instead of using the black stripe (as is now seen on the card’s backside), these cards will have a small chip, which will store the information in an encrypted format and has the additional level of security using a personal identification number (PIN).

Many banks are issuing chip-based cards to high-end customers as of now, as only such users have a higher credit limit and hence are prone to frauds.

Axis Bank (with its Visa Platinum Card) was the first to launch chip-based cards in March 2008. Citibank and Kotak Mahindra Bank too have been offering this technology on select cards. State Bank of India and HDFC Bank too have started issuing chip-based cards to platinum card holders. Sources say that other banks such as ICICI Bank are also working on implementing the technology soon.

While most banks are planning to launch these in the near future, some foreign banks that DNA contacted, said they don’t offer chip-based cards now and do not plan to offer them in the immediate future in India.

Card issuers call this technology EMV which stands for Europay, MasterCard, Visa standard. A credit card head at a foreign bank said, “Right now, not many banks in India offer chip-based
facility.” 

While launching its chip-based platinum debit card late last month, State Bank of India’s chief general manager R K Garg said, “The introduction of this technology would provide improved
security to customers as the data on the chip is extremely difficult to copy or change. Frauds would be contained and minimise charge backs, which would reduce banks’ administrative costs. It would also enable the bank to store multiple applications on a single card, such as loyalty applications and electronic purse.”
HDFC Bank launched EMV chip cards around three months ago.

“EMV chip cards are increasingly becoming the standard in many countries, especially in Europe and South East Asia. These cards offer the highest level of security to customers especially against card data compromise at point of sale (POS),” said Parag Rao, executive vice-president, head of credit cards at HDFC Bank.

Another private bank that issues cards told DNA, “Internationally, we are already offering EMV cards, which are superior to the technology currently being used by most players in the country. We will soon offer these solutions in India.”

Asked what has prevented banks from offering this technology in the past, the credit card issuer said, “Chip-based cards cost around Rs 70-80 as compared with Rs 10-15 that are spent on the regular magnetic stripe based cards. They are expensive.”
That is the reason bankers say that this technology will be used on cards where there is a higher risk of fraud.

Rao said, “HDFC Bank initially is targeting premium customers by offering chip-based cards and upgrading existing signature based cards to chip cards. We will also focus on customers who frequently travel overseas.”

The bank that issues 8,500 new cards a month is planning to issue approximately 5 lakh chip cards to premium customers by March 2011, Rao added.

Banks say that the costs of these chip-based cards should reduce as more and more players plan to sell them. Volumes will take care of the costs they say. Also, a private bank that issues cards said, “Internationally, starting October 2010, the liability of a fraud will be shifting to the bank that issues the card instead of the merchant or the bank on whose terminal the card has been swiped.” Hence banks would soon be moving to chip-based cards.

Axis Bank at an earlier occasion had said, “When the chip-based card is inserted in the terminal there is a validation check done and if it is proved that the card is not genuine the user is protected in terms of validity.”