Safety chip makes plastic money dearer

Credit card fees set to go up by Rs 300.

If a bank offers you a credit card for which you do not have to pay the annual fee during the first year, just grab the card. This is because such opportunities will not come your way once banks switch to smart cards.

As a result the annual credit card fees will also go up by Rs 300. It means a person who pays Rs 750-Rs 1,000 at present as annual fees will have to cough up Rs 1,050-1,300.

In line with their global practice, Visa and Master Card have introduced chip payment technology to check frauds in India's credit and debit card industry. This will entail increase in their technology budget by about 50 per cent. Customers will, therefore, have to pay the price, senior bankers say.

"The business case for migration to chip payment technology is driven by fraud," says Santanu Mukherjee, country manager, South Asia, Visa.

In India, the level of fraud is still minimal. By 2008, all banks in the Asia-Pacific region will have to switch to this technology. Their counterparts in the West had already done this, he added.

Visa and Mastercard are offering incentives to card issuing banks to switch to chip technology. These include discounts on the chips and technology to be used at points of sale.

"Bank will have to incur an additional cost of around Rs 150 to Rs 200 on issuing each smart card, plus the additional infrastructure cost. The cost will be passed on to the customer," says Madhivanan B, joint general manager, retail asset products group, ICICI Bank.

A smart card resembles a credit card in size and shape, but contains an embedded 8-bit microprocessor, commonly called a chip. The chip is typically used to store customer account information, including one's balance.

The card is inserted into the point of sale terminal at merchant locations. The cards can read and write, and update information.

Smart cards help check frauds as it is not possible to copy a chip. Credit cards now use a magnetic strip, which can be easily tampered with. This explains why payment companies Visa and Master Card are urging banks to migrate to chip technology.

"Banks are not issuing smart cards in the country as the level of fraud in India is minimal," says Pralay Mondal, senior vice president and head, credit cards, at HDFC Bank.

Banks have started investing in the acquiring side of the business, namely, upgrading the technology at their merchant locations. ICICI Bank and HDFC Bank have started making changes at point of sale (POS) terminals.

Ninety-five per cent of ICICI Bank's 50,000 terminals were today chip-enabled, says Madhivanan, adding that. ICICI Bank was prepared to issue smart cards within a month. Initially the bank will offer the option to its gold card customers only.

HDFC Bank, likewise, has introduced the necessary technology in around 35,000 of its 40,000 POS terminals.

Getting smarter

WHAT'S A SMART CARD
A smart card contains an embedded 8-bit chip, which is used to store customer account information, including one's balance

SAFETY NET
Smart cards help check frauds as it is not possible to copy a chip

SPECIAL OFFERS
Visa and Mastercard are offering incentives to card issuing banks to migrate to chip technology