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Not so smart

Thursday, 09 March 2006 00:00 Written by Kimberley Guest

SA banks lag in smartcard rollout Local discussion around introducing smartcard technology to banks has in many areas outperformed the global market buzz. Nevertheless, SA banks - recognised globally for their innovation in technology - have been decidedly slow in actual introduction of smartcards. Does this imply that smartcard technology is more hype than hope? Or has the local rollout been hampered by the very organisation that was established to facilitate the transactions of SA`s banking industry?

According to industry commentators, it is a combination of both that has resulted in local banks progressing at varied rates; ultimately leaving the consumer and companies unsure of what to expect.

AHEAD OF THE REST

MasterCard`s VP for product delivery in the CEMEA (Central Europe, Middle East and Africa) region, V.S. Chandrasekhar, says in many areas the SA market has eclipsed its First World counterparts. As an example, Chandrasekhar points to the deadline for the liability shift.

Globally, fraud liability shifted to the bank that did not have smartcard technology at the end of January 2006; in SA this change was made a full year earlier. The result of this decision is as follows: If the purchaser`s bank had not issued a smartcard it would be liable for any fraud that took place on the card. However, if it had and the merchant`s bank hadn`t upgraded to smartcard technology the liability of the fraud would, simply, lie with the merchant`s bank.

"South Africa was clearly one of the countries that decided they would be migrating to smartcard technology at the outset of discussions. The country`s banks set up a country-level EMV forum around five years ago and have generally been running at the same speed," he says.

Not so, according to reports in the media. If anything, there has been a significant divide between the Big Four with and showing good progress, while and `s initiatives have appeared to lack steam.

GLOBAL STANDARDS

But how do we compare to rest the world? Estimations from Visa International show that South Africa, with more than 80% of its point-of-sale (POS) terminals smartcard-enabled, is pretty much in line with its European counterparts. However, when you look at the ATM network and rollout of smartcard-enabled cards, the figure is less than 5% of the total market.

Interestingly, if you hold a smartcard-enabled debit or credit card from an international bank, chances are good that you will be able to use these locally. Nick Essame, head of new technology for Visa Sub-Saharan Africa, explains: "Transactions on international bank cards commonly go through the international card associations, and as most of the POS`s are smartcard-enabled there are no problems in using this technology to process the transaction."

LOCAL LAGGERS

But the story would not be the same for local bank-to-bank transactions, even if your bank had started issuing smartcards. Essame explains: "Although card associations are used for switching of international transactions, local switching goes through Bankserv. And unfortunately, Bankserv has taken longer than anticipated to ensure interoperability of standards between the local banks."

Nevertheless, Bankserv has not been the only source of the problem. Initial negotiations between the banks and the to develop an ID card that would support both banking and government requirements have faded into non-existence as both sides failed to agree on the all-important standards. And as far as most of the banks are concerned, the high cost of smartcard compliance prevents management from developing a strong case for rollout.

Therefore, Card CEO says, the bank has adopted a practical approach to the introduction of chip cards as they are generally more expensive to produce, issue and replace than magnetic stripe cards, and they need to ensure that the consumer benefits justify this expense.

On the other hand, Standard Bank COO, Alewyn Burger, says his bank has made most of the technology investment and intends to roll out smartcards to customers this year.

"We will definitely be taking smartcards to market this year. Our priority is consumer and merchant education and high-volume issuing of cards from about June. For Standard Bank, this is about an evolution in behaviour rather that technology and we do see extended usability over time," he explains.

In the meantime, Essame says Visa will continue working behind the scenes to motivate their local banking partners to step up smartcard rollout; particularly as slow - or non-existent - rollout could damage the association`s reputation.

"For now we are focusing on providing incentives to our partners to upgrade, and we do expect some very interesting results in the next six months. Of course as banks start positioning themselves with smartcard technology, pressure will be placed on those that have been left behind to catch up," he concludes.

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