RBI for additional authentication to cut card frauds

The Reserve Bank of India directed banks to use additional authentication procedures for reducing frauds in credit and debit card transactions.

According to the directives put out by the banking regulator on Thursday, card issuers have to implement the new procedures within two years.

According to the tasks given to banks and card issuers, Aadhar-based biometric authentication procedures can be used for authentication purposes during card transactions. The RBI has asked banks to shift entirely from magnetic stripe cards to chip-based cards and use pin technology extensively.

“The increased usage of credit/debit cards at various delivery channels have witnessed a rise in the frauds taking place due to the cards being lost/stolen, data being compromised and cards skimmed/counterfeited,” the central bank said.

The RBI has agreed that banks can take a view on using Aadhar after looking at its progress over the next 18 months.
“The position of Aadhaar-based biometric authentication as a second factor of authentication for card present transactions would be reviewed by end of December 2012,” the central bank said.

Banks seem to be happy with the RBI’s move. N Srinath, executive director, Bank of Baroda, says most players will now move towards chip-based cards as soon as possible to ensure excellent service to customers.

In March, the RBI had set up a working group with representation from various stake holders to examine these aspects of security and suggest a plan to counter these problems. After the group submitted its report in June this year, the banking regulator has accepted broadly most of its recommendations.

The market’s think-tank is glad that the RBI made such a move toward safer transactions. The move, they believe, is one with sound benefits in the longer run. “A primary reason for non-usage of debit cards is security concerns that will be allayed.  Debit card usage at POS - which is abysmally low - can take off in a meaningful way,” said Saurabh Tripathi, partner and director, Boston Consulting Group.

Though banks agree that the cost involved in issuing chip-based cards will pinch them, they will go ahead and do this as it ensures better services to the customers. “In European countries it is already compulsory to issue chip-based cards. I think this is a cost that banks will have to take,” said BA Prabhakar, executive director, Bank of India.

The central bank has, however, clarified that banks are free to migrate to EMV chip and pin-based technology based on their commercial judgement and board decisions.