CBN Orders Banks to Stop Issuing Magnetic Stripe Payment Cards
The Central Bank of Nigeria (CBN) has ordered banks to Stop issuing magnetic stripe payment cards by April 1, 2009.
The smart (or chip) card which is the latest in payment card technology contains a computer chip and enables the holder to purchase goods and services, enter restricted areas, access medical, financial or other records, or perform other operations requiring data stored on the chip.
It has a built-in microprocessor and memory used for identification or financial transactions. When inserted into a reader, it transfers data to and from a central computer. It is more secure than a magnetic stripe card and can be programmed to self-destruct if the wrong password is entered too many times. As a financial transaction card, it can be loaded with digital money and used like a travelers check, except that variable amounts of money can be spent until the balance is zero.
In a circular to all banks titled, “Extension of Timeline for Migration from Magnetic stripe to Chip plus PIN/EMV, signed by the acting director, banking supervision department, Mr. James Olekah, the CBN stated, “Recall section l,4.2c of the e-banking guidelines issued in 2003 by the CBN stipulates that “in view of the demonstrated weaknesses in the magnetic strip technology banks should adopt the chip (smart card) as the standard, within five years.” The implication of this is that the timeline given to card issuers in the guidelines had expired at the end of August, 2008. However, after due considerations of the concerns from the market and other stakeholders, the National Payments System Committee agree to extend the deadline for the migration to Chip+PIN technology to April 1, 2009. You are by this circular required to cease the issuance of new magnetic strip cards with effect from April 1, 2009. However, previously issued magnetic stripe cards should be withdrawn on expiration of the cards and not as of April 1, 2009. Please note that no new extension of the time would be granted, while failure to comply with this directive will attract severe sanctions which would include imposition of financial penalty and withdrawal of approvals.”
In anticipation of the directive of the CBN on Chip Cards, InterSwitch, Nigeria’s premier payment transactions switching company, introduced Verve card, a pan-African innovative chip and PIN (Personal Identification Number), EMV compliant payment card.
According to Mr. Mitchell Elegbe, managing director/CEO of InterSwitch, who spoke to journalists at the media launch of Verve card, the expected change from magnetic strip cards to chip and PIN platform, is what necessitated the release of Verve card into the financial market.
Elegbe said CBN’s directive was made in the best interest of banks, merchants and cardholders because existing magnetic stripe cards have minimal storage space, cannot store applications, offer little flexibility for new product development, are easy to duplicate and offer minimal security features.
With the release of Verve card, which can be used on mobile, ATMs, PoS, Web and the Internet, Nigerian banks are expected to begin the conversion of 28 million cards in circulation to the chip and PIN platform since major payment card schemes in Europe, Middle East, South America and Africa have converted their cards to the secured smartcard platform.
However, Verve card on the other hand is secured with integrated circuit chip (ICC) and can carry enhanced data. The ‘chip’ part refers to the smart card-a plastic payment card with an embedded microprocessor, which contains the same information as a magnetic stripe but it has additional processing capabilities and a secure memory. In developing the Verve card, Mastercard MChip 4 technology was adopted. The card has bigger storage capacity, offline PIN verification and can perform cryptographic calculations.
“The microprocessor can hold multiple applications where an application may be a specific brand of credit card, loyalty card, gift card, staff discount card, etc; so a cardholder could have credit and debit applications, loyalty applications and electronic ticketing on a single physical card,” Elegbe explained.
Specifically, Elegbe informed that Verve cards can hold information securely and is difficult to copy or alter. The security and EMV features in Verve card guarantees a higher level of security for payment transactions than magnetic stripe cards. Interswitch has also initiated eight other security initiatives; MoneyGuard (which allows cardholders to send an SMS from their phones to block their cards should they suspect any unusual activities), Fraud Watch (a portal and email for fraud reporting and information management, Fraud Guard (a fraud management and transaction security system), Fraud Insure (card fraud Insurance), Fraud Team (Risk Management team), Identity Guard (Token based strong authentication), Fraud Aware (Cardholder Awareness Campaign) and Data Guard (EMV Mchip 4).
Prepaid Cash Card Marketers Seek to Fill Credit Void
A tightening economy has pushers of prepaid cash cards circling a growing market that’s without bank accounts and credit cards.
“There are going to be more people pulling out of the traditional banking system,” said Jerry R. Welch, chairman and CEO of nFinanSe, a Tampa, Fla.-based operation that last year introduced a lower-cost prepaid cash card.
Such cards are essentially serving as portable bank accounts for the unbanked and underbanked—about 80 million in this country—as well as millions more who have lost their credit cards in the crunch but still want plastic for convenience.
Underserved consumers have about $1 trillion annual income and pay about $1 billion each year in check-cashing fees, according to Visa, which last week announced a deal to allow customers to add cash to their prepaid cards at U.S. MoneyGram locations.
Last month, Wal-Mart Stores Inc. lowered the fees on its two-year-old prepaid Visa card in a bid for more business.
Still, Welch says nFinanSe’s lower fees—carrying a $5.95 retail price and charging $2.95 monthly and reloading fees—will give it an edge with the budget-conscious. The Wal-Mart card costs about $8.94 to purchase, $4.94 for monthly maintenance and $4.64 for each cash reload, while MasterCard and Visa card products in convenience stores, drugstores and grocery stores are $9.95 to $14.95 to purchase, with $4.95 monthly and reloading fees.
Dollar General stores recently began carrying nFinanSe’s Discover Network-branded cards, which are activated and issued on the spot, unlike most cards in the market, which can take up to 10 days to be delivered to the user. The cards also tout text updates, instant reloading and a free 24-hour customer service line.
Prepaid Card Use Rising as Credit Cards Stutter
Like swapping a Lamborghini for a Ford Fiesta, some credit card users are switching to the safer, less expensive payment vehicle of prepaid cards as the economy continues to travel downhill.
They’re known as general purpose reloaded cards, and they serve as budgeting tools for those looking to trim spending, and as mobile bank accounts for those just needing a card-based way to spend. The cards are convenient: They can be used at any merchant that accepts the Visa, Discover, American Express or MasterCard logo on the card, and they are growing in use: About $7.1 billion will be loaded on them in 2009, up from $2.1 billion in 2007, according to the Mercator Advisory Group, a research and advisory firm for the payment industry.
“Because of the economy, there is a shift with more consumers going from credit to debit and prepaid,” Brent Watters, director of marketing for Mercator Advisory Group says. “People are reluctant to use credit, and it’s pushing them to another payment vehicle.”
Three companies, Green Dot Corporation, the NetSpend Corporation and nFinanSe Inc., are helping with that push by managing and distributing the prepaid cards to a large number of supermarkets, drug stores and check-cashing services. The companies also provide the software, hardware and customer support needed to control all the cards, according to a New York Times article.
It works like this: Say you are spending too much on dinner every week and you need a way to budget that money. Instead of allotting some cash in an envelope for dinner, you go to Walgreens, Dollar General, Albertsons or another retailer and pick out a prepaid card. You buy the card for about $6 and load whatever amount of money on it you’ll need for a week of dinner. The company that distributed the card, whether it be nFinanSe Inc. or another, gets some of that $6, plus maintenance, reload and other fees, and you get a well balanced dinner.
“Even folks that already have a debit card are using a prepaid card to control spending or to budget,” Watters says.
Other than consumers who need to plug their spending, folks without a bank account are also looking at prepaid cards because they don’t include the credit checks and minimum account balances banks require. They’re convenient for large purchases, too, which is nice for someone who can’t get or doesn’t want a credit card.
No one can seem to agree as to how many Americans are without a bank account, so the statistic varies greatly—somewhere between 10 and 56 million. Determining that number is difficult because some researchers count users of prepaid cards as having a bank account, and some don’t. And the diverse banking regulatory system, with some banks federally regulated and some regulated by states, makes it tricky to sum up how many accounts there are and how many there aren’t.
Regardless of what that number might be, it’s certain the companies providing prepaid cards are growing. Green Dot started selling general purpose reloaded cards in 2001 to chains such as Kroger and Walgreens. Today, they are selling to the retail giant Wal-Mart and pulling in $350 million in annual revenue, according to their website. Austin, Texas-based NetSpend has about $180 million in annual revenue and 300 employees. And nFinanSe, which was founded in 2000, now has 80,000 cards distributed through Dollar General and Winn-Dixie supermarkets.