Costly Yet Justifiable Spending
By Oanh Nuyen
Vietnamese banks are shifting their focus from magnetic cards to chip, or smart cards. However, the switch requires staggering investments and, therefore, has only been adopted by a few banks. This approach, while costly, will help enhance the security and convenience of their services.
Two years ago, Vietnamese banks started issuing magnetic cards for security purposes. Later, some banks opted for smart cards instead.
Inevitable trend
In Vietnam, about 10 of the 40 issuing and paying agencies have embraced smart cards. These institutions include VPBank, VIB Bank, Vietcombank and BIDV.
VPBank, the first institution to choose this approach, has issued EMV-standard smart cards since mid-2007 (EMV is an international standard for smart cards that was established by Visa, MasterCard and Europay). VIB Bank and Vietcombank followed suit in mid-2008 and April 2009 respectively.
Nguyen Thi Thu Ha, deputy general director of Vietcombank, says that smart cards offer customers optimal payment services and are part of the efforts to modernize the banking system through the use of advanced solutions and technologies.
Duong Thi Thuy, deputy general director of VPBank, says that the shift from magnetic cards to smart ones has gathered support from customers. Thuy contends that smart cards will be on the rise in Vietnam in the future.
Ivan Mak, who oversees financial solutions at Datacard, a leading provider of financial cards around the world, says the group considers Vietnam to be a market with immense potential. Compared with many other countries, Vietnam has a large number of financial and banking institutions. Although, according to Visa and MasterCard, banks should have started using EMV-standard smart cards in 2006 to ensure security, minimize risks and protect customers’ interests, the process remains slow in Vietnam.
Mak says that many banks and financial organizations in Vietnam are pondering the issuance of smart cards, which are proliferating worldwide. The change, he contends, entails a comprehensive revamping of technologies, equipment and workflow and offers his group a business opportunity.
Benefits of smart cards
Experts say that smart cards use microprocessors as mini-computers and, as a result, can store an enormous amount of information. Moreover, it is far more difficult to make counterfeit smart cards. By virtue of the most advanced security technology, the data stored in smart cards can be encrypted to prevent fraud.
Smart cards also make it easier for issuing organizations to provide other services and applications such as e-payment assistance, e-commerce and digital signatures. These cards can serve multiple functions, using a single password. Customers can be identified through their signatures and photos, which are stored on the chip. Without visiting the bank, customers can still update the data stored in the smart card.
Furthermore, smart cards also help resolve disputes between customers and banks such as those involving difficulty in withdrawing money. These cards are also more resistant to heat and humidity than their magnetic counterparts.
Problems remain
An expert says that each bank needs two to three months to complete the switch from magnetic to smart cards. For banks which entered the market for financial cards at its nascent stage, the change involved not only reissuing cards to customers but also upgrading equipment, which is costly. However, newcomers will find the process less daunting as they already have the necessary terminal equipment.
Another expert estimates that the cost of switching from magnetic to smart cards is approximately US$1 per card. Upgrading an automated teller machine (ATM) and a card reader cost about US$1,000 and US$100 respectively. The change, therefore, will require banks to invest millions of dollars, which is a huge sum if banks have not reaped much revenue from card services. Therefore, card-issuing organizations should take into account their financial capabilities when adopting smart cards.
Bui Quang Tien, head of the Payment Department of the State Bank of Vietnam (SBV), says that his department is embarking on research into a common road map for the change, in line with Vietnam’s conditions. However, SBV has yet to come to a final decision on this matter, and everything is still under consideration.
International groups such as Europay, MasterCard and Visa have warned that those institutions which refuse to switch to smart cards will bear the risks on their own. However, Tien says that this warning is applicable only to cards issued by these international groups, rather than to domestic cards in Vietnam. While smart cards come with greater security, magnetic cards still work relatively well. Experience from other countries indicates that it is advisable to allow both smart and magnetic cards while the shift is underway.