Promoting Conversion of Magnetic Cards to Chip Cards

According to the draft amending and supplementing a number of articles of Circular 19/2016 regulating bank card operations, recently announced by the State Bank of Vietnam, this agency has set a specific timeline of March 31, 2021 for card issuers to issue new local cards which are chip cards, instead of magnetic cards as currently.

The conversion from magnetic cards to chip cards is one of the key solutions of the banking industry approved by the Prime Minister under the Non-Cash Payment Development Scheme for the period 2016-2020 (Decision 2545/QD-TTg).

Nowadays, with the attention and direction of the Government, the State Bank and the response of customers, non-cash payment increasingly shows its superiority and gradually becomes popular in Vietnam.

According to data provided by Digital 2019 Vietnam and Digital 2020 Vietnam, the number of Internet users has increased rapidly year by year. In 2019, there were 64 million Internet users, an increase of 28% compared to 2017. By February 2020, the number of Internet users reached 67 million (accounting for nearly 70% of the country's population). In addition, solid telecommunications infrastructure and smartphone penetration are key to non-cash payments.

Besides, the forms of non-cash payment in Vietnam are increasingly diversified, from payment by bank cards to online forms of payment via electronic channels such as Internet Banking, Mobile Banking, SMS Banking, and e-wallet.

In the card payment field, the transition from magnetic cards to chip cards is happening at a rapid speed. A magnetic card is a card with a magnetic strip behind the card, the data on the magnetic card is permanently stored on the magnetic strip (on the back of the card). So it easily leads to the risk of card information theft and transaction fraud. The chip card - also known as a "smart card" has a microchip attached to the card surface, the transaction data is stored on the chip (on the front of the card) and the cryptogram changes with each transaction. This is the basic difference between chip cards and magnetic cards, ensuring safety and security for chip cards.

The conversion of magnetic cards to chip cards is a common trend in many markets around the world, with the aim of enhancing safety and security for customers. Applying chip card technology standards will limit the theft of card information as well as other safety risks. In addition, the chip card technology also brings many convenient features in payment, making an important contribution to promoting non-cash payments. Specifically, with contactless technology for chip cards, customers will experience quick - convenient - safe payments, suitable for small transactions customers previously used cash for such as supermarkets, convenience stores, fast food restaurants, cafes.

In Vietnam, in 2019, the State Bank issued a set of basic standards on domestic chip cards and issued a roadmap for converting from magnetic cards to chip cards. As of September 30, 2020 - according to the report of National Payment Corporation of Vietnam (Napas), more than 20 commercial banks had converted from magnetic cards to chip cards, the whole market had 7.4 million domestic chip cards, 199,000 POS and 12,000 ATM were upgraded to accept chip card payment.

Vietcombank is among the first banks to converse domestic debit cards from magnetic technology to contactless chip technology, upgrading the system of electronic data capture (EDC) as well as ATMs throughout the system to ensure the acceptance of chip cards according to the basic standards, meeting the requirements of the conversion roadmap under Circular 41 of the State Bank. As of October 31, 2020, Vietcombank had issued and converted 2.5 million domestic chip cards, upgraded over 43,000 POS (approximately 80% of Vietcombank's POS) and over 2,000 ATMs (reaching 82% ATMs of Vietcombank) to accept chip cards according to the basic standards throughout the system.

Some other banks such as Vietinbank, Techcombank, ABBank, BIDV and Lienvietpostbank are also actively implementing this conversion. These banks are taking advantage of digital economic development to promote electronic payments and aim for the goal that most Vietnamese people use chip cards in making payments for essentials of life.

Notably, according to the draft amending and supplementing a number of articles of Circular 19/2016 regulating bank card operations recently announced by the State Bank, this agency has set a specific timeline of March 31, 2021 for card issuers to issue new domestic cards as chip cards, instead of magnetic cards as currently. Previously, the State Bank had required 100% domestic debit cards (ATMs) circulating in the market to comply with the basic standard for domestic chip cards as of December 31, 2021. Thus, the State Bank has accelerated the issuance of new chip cards of commercial banks.

According to the roadmap for converting ATM cards from magnetic cards to domestic chip cards of the State Bank, tens of millions of cards will have to be converted into chip cards.

However, not many magnetic card-holders have come to convert to chip cards. Some banks even continue to issue new magnetic ATM cards. This has a certain impact on the progress of issuing Chip cards of the whole banking system.

By the end of the third quarter of 2020, the whole country had more than 93.78 million domestic cards in circulation, mainly domestic debit cards (ATMs).

By Anh Mai, Vietnam Business Forum