News

S. African banks to spend $22.4M on chip conversion in '04

February 25, 2004

JOHANNESBURG, South Africa - South Africa's major banks face bills of more than 150 million rand (U.S. $22.4 million) in the coming year under an obligation to convert their credit and debit cards to the EMV standard.

According to a report in Business Day, banks will issue new chip-based cards to 16 million users, upgrade 9,000 ATMs and rework their back-end processing systems to handle the new technology.

The change will also affect retailers, as 130,000 point-of-sale terminals must be upgraded to let customers key in a PIN rather than sign a slip of paper.

The move has been forced by increased incidents of card skimming. According to Business Day, the number of counterfeit cards produced by skimming soars 65 percent a year.

"Magnetic stripe technology isn't good enough any more because the cards can easily be cloned, so they are introducing chips because a microprocessor cannot be cloned easily," said Gerhard Claassen, managing director of cryptography for electronic transactions company Prism Holdings.

Microprocessors will house personal data about the cardholder and his or her financial status. The major change for consumers is that they will have to enter PINs each time they use the card at the point of sale.

The chip will contain enough information to authorize a point-of-sale terminal to accept a transaction without going online for the bank's approval, which will speed up purchases and let retailers in rural areas accept payments even without telephonic access to the bank. Chips can also hold information such as loyalty programs, so rewards can be accumulated and redeemed instantly.

The advantages come at a cost, however.

"The whole infrastructure must change," said Claassen. "The operating systems inside ATMs need to change. Converting a top-range model will cost from 20,000 rand to 30,000 rand (U.S. $3,000 to $4,500)."

Payment systems are due to be compliant by Jan. 1, 2005. After that, the liability for any fraudulent transaction will lie with any party in the chain that has not converted. (See related story Asia-Pac is leading EMV adoption)

"This is not a money-making venture, but fraud is increasing dramatically," said Walter Volker, Absa's general manager of payment systems. "As Europe and the Far East migrate to chip cards, organized crime syndicates will target countries where the systems are most vulnerable, so we have to protect the integrity of our payment systems."

Volker said Absa has already upgraded 75 percent of its ATMs to accept chip cards. "It's a long and drawn-out process. We have to upgrade technology which is very expensive, and we can't underestimate the customer education part," he said.

Both Absa and the Standard Bank have issued smart cards to some employees for internal trials before they begin converting their customers. The first wave of new cards could appear within two months, according to Business Day.