Warning: fraudsters eye up banks

Banks aim to stay one step ahead of fraudsters

Visa’s Asia-Pacific general manager for risk management Peter Maher visited Vietnam last week to meet with State Bank of Vietnam leaders, Visa-member banks and law enforcement agencies.
He said important decisions needed to be made by regulators and policy-makers on the technology platforms and security standards that the country should adopt to ensure the development of a modern and secure payments system.
He said from January 1 next year, Vietnam would become vulnerable to international criminals, who might shift their focus from other regional nations to take advantage of the current payment system based on magnetic-strip technology.
“Fraudsters are increasingly focusing their efforts on markets with less-established risk management practices and systems... Vietnam’s payment industry is still young,” he said.
Under the new regulations issued by international card organisations, effective in Asia-Pacific from the beginning of next year, banks clearing payments, or acquirer banks, will have to bear any risks associated with fraud if they are not ready to accept “smart cards”, which are also dubbed “chip cards”.
So far, only card issuance banks are responsible for such risks once the fraud is committed.
“If an issuance bank faces such risks, it is only the bank’s problem. But if an acquirer bank faces such risks, it presents a risk to the whole community,” Maher said, adding that acquirer banks were therefore always the first ones he meets when entering a new market.
Visa, which soaks up the largest card market share in Vietnam, with 62,000 credit and debit cards issued by the end of last year, believes that EMV (Europay, MasterCard, Visa) chip technology offers the best long-term solution to the problem of counterfeit fraud. Carrying an embedded microchip, smart cards offer greater security than existing magnetic strip-based cards, thanks to the computing power of the chip. Smart cards significantly reduce losses from skimming or copying the contents of the magnetic stripe.
Maher said that compared to other markets in the world with established legal systems and payment infrastructure, Vietnam could by-pass the magnetic-stripe phase and leap straight into the more secure future of chip infrastructure.
Cooper Gordon, Visa International’s chief representative in Vietnam, said over the next 18 months, most members would have the necessary systems in place to process chip card transactions, and a number of banks plan to issue chip cards in 2006.
Deputy general director of Vietcombank (VCB) Nguyen Thu Ha said the bank has been preparing to upgrade its card system to chip technology. However, she admitted that it would take the bank about two years to complete the process.
“We are selecting the appropriate technology so that we can start purchasing in 2006,” Ha said, adding that the first EMV-based products would be introduced to the local market by the second half of next year.
VCB is currently the only issuer of MasterCard, Visa Card and American Express cards in Vietnam, with more than 50,000 cardholders in its client base. VCB is also the acquirer bank for MasterCard, Visa Card, American Express, JCB and Diner’s Club, with 5,000 point-of-sale (POS) terminals and 400 ATMs nationwide.
Roughly 90 per cent of VCB’s ATMs and more than 70 per cent of its POS terminals are already compatible with chip cards, Ha said.
Visa Asia-Pacific’s statistics show that the fraud rate of Visa cards in Vietnam is approximately 0.15 per cent. The normal global rate is about 0.06 per cent, according to Maher.