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Transition hitches as migration to chip ATM cards nears tail end

FINANCIAL STANDARD
By Jackson Okoth | May 20th 2014

By Jackson Okoth

Kenya: There are just under two weeks to go before the May 31 deadline when commercial banks are expected to have issued new chip and pin cards to their customers. After this date, the liability for any fraudulent transaction carried out on a customer’s magnetic stripe card shall be borne by the issuing bank.

However, the transition from the old cards to the more secure Europay MasterCard Visa (EMV) cards has not been as seamless as many had hoped.

Most bank outlets are now characterised by long queues of customers lining up to change their ATM cards as several institutions have begun distributing the new payment cards.

“My bank is giving us the new cards on the spot, so the queues are not necessarily moving quickly, but at least you know that by the time it is your turn, you’ll get the upgraded card and you don’t have to visit the branch later on,” said James Omondi.

But not all banks are able to do so.

“We have received feedback from some banks that they are experiencing challenges in getting the cards issued, mainly due to delays in certification as well as logistical concerns around importing and personalising the new cards,” said Mr Fidelis Muia, the director of technical services at Kenya Bankers Association (KBA).

Certification costs

The costs have also been quite an undertaking. EMV certification costs between $6,000 and $10,000 (Sh525,000 and Sh875,000) per institution. System upgrades cost much more and vary depending on the vendor.

“A number of banks have had to outsource their card systems to third-party processors due to the cost implications, while others have had to procure completely new card management systems. The new chip and pin cards are more expensive than the old magnetic stripe cards,” said Mr Muia.

The migration to the EMV standard is, therefore, expected to continue beyond this month.

“We must appreciate the steps that the relevant entities need to go through to be compliant. It is important for the public to understand the complexity of the work that goes into ensuring EMV compliance,” said Mr Jabu Basopo, the Visa country manager for Southern and East Africa.

Before the move was started, KBA’s operations and technical services committee held a series of workshops for member banks, during which its members agreed to standardise the migration.

First, banks had to upgrade their automated teller machines (ATMs) and point of sale (POS) terminals to ensure they are capable of handling EMV transactions to get them certified.

After this, the institutions had to procure the plastic for the cards, and then get a different vendor to do the actual personalisation or production of the card to enable it carry customer details.

“It is important to appreciate that there are lots of players involved in this process, and planning is key,” said Mr Basopo.

He added that migration to EMV is a journey that requires patience, and distribution of the cards to consumers may take some time to finalise.

Visa officials anticipate that the process may take up to three months and is dependent on the availability of the consumer.

“The process should not be seen as an inconvenience to banks or customers. The long-term benefits of EMV technology cannot be overemphasised. EMV chip cards are embedded with a multifunctional microchip that has superior security features that are unavailable on the magnetic stripe. Chip technology, both embedded in the card and the acceptance device, increases the safety and security of transactions,” said Basopo.

These security features include strong authentication levels to validate the cardholder, the card and the transaction. This makes chip technology the most secure instrument for card payments. The microchip embedded in the plastic is virtually impossible to replicate, a deterrent to fraudsters.

In many cases of fraud, information on magnetic stripe cards is captured via a simple device that skims the strip. The data can then be cloned onto a blank card and used to make fraudulent purchases or withdrawals.

Business opportunities

Banks have invested heavily to issue the compliant chip cards and upgrade their systems to protect deposits.

“We see any additional investment in security as an opportunity for banks to enhance business opportunities through additional channels, grow cross-border transactions through renewed confidence in the payment system, and reduce losses due to counterfeit fraud,” said Basopo.

The traditional magnetic stripe cards are slowly being phased out on a global scale.

“We cannot afford to be left behind because a weak system here is a threat to the entire global financial system. We are proud that Kenya is currently one of the few countries in Africa that have adopted the EMV compliance standard, placing it at par with other leading countries in enhancing fraud mitigation systems,” said Mr Habil Olaka, KBA’s chief executive.

We will run the final part of our series on the EMV migration next week. Email questions or comments to [email protected]

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