Smart cards' exorbitant costs put off banks

Smart cards may not be the smartest of options for banks when it comes to credit or debit cards. While Visa and Mastercard are aggressively pushing banks to convert to smart card, the bankers have not found a convincing business case.

"Smart card is more of a marketing gimmick as of today," says B Madhivanan, head of cards business at ICICI Bank, the largest private sector bank and the largest card issuer in the country.

"Smart card has a case where card-related frauds are high. Thankfully in India, these are well within limits," says Roopam Asthana, chief executive officer, SBI Cards.

SBI, which is working on a smart card project for some time, does not plan to introduce it for at least another year. Asian countries, such as Malaysia, which are seeing a high conversion to smart card are estimated to have a fraud incidence of 3-4 per cent of the transactions compared with about 0.4 per cent in India.

Regulatory pressure in countries with high fraud incidence also made conversion to smart cards inevitable. While the usual plastic card costs just a few rupees, a smart card costs nearly Rs 100. The cost structure can vary depending on the volume but the difference is significant enough for banks to not take the plunge.

Then there is the infrastructure issue. While 53,000 of the 55,000 point of sales (POS) terminals placed by ICICI Bank have a built-in smart card reader, the total POS in the country are estimated to be 1,30,000-1,50,000 and a sizeable number of them would need to be replaced to become smart card-friendly.

Yes Bank, the newest entrant in the banking sector, also does not find the business case for the smart cards attractive enough and is keeping a wait and watch approach.

Besides economics, many applications are no longer smart card dependent. While smart card applications allow banks to offer a card that can be used as 'cash replacement' and be topped up with cash at merchant locations and automated teller machines, the use of mobile phone as a payment mechanism offers the same security and more options.

With smart cards, the terminals where the cards are swiped need not be connected to a fixed phone line but the same effect can be achieved through use of mobile phones.

Though Mastercard and VISA are confident that the cost factor for smart cards may fall further with increasing volumes.

ICICI Bank has implemented smart card solution for HPCL which allows transporters to buy HPCL products. "Providing a customised solution to a corporate client is a different scenario and makes business sense," says Madivanan.