Magazines Archives - 2009 June

Indonesian central bank paves way for smart cards
Story 2 - News Feature

IN a bid to lessen its dependence on cash and move towards card transactions, Indonesia’s central bank is actively promoting the use of smart cards among consumers.

Through its central bank, the country with the world’s fourth biggest population — at 237.5 million people — is positioning itself as a “less-cash society”, encouraging the use of plastic to reduce the social cost of printing hard money and inhibit activities of the cashdependent underground economy. The government also sees the use of plastic hastening the speed of transactions, which, in turn, is expected to increase overall economic activity.

Statistics from financial regulator Bank Indonesia indicate a sizeable penetration of plastic in the market, with 52% of the employed population carrying at least one payment instrument — whether credit cards, debit cards, prepaid cards or e-money.

Cards in issue have grown almost 60% between 2005, when 32.9 million instruments were issued, and last year, when this ballooned to 52.2 million. Card transactions have likewise seen dramatic increases, with value rising to Rp2,163 trillion (US$196.6 billion) in 2008 from Rp900 trillion in 2005 and volume growing to 1.52 trillion from 950 billion, central bank data reveal.

Bank Indonesia, however, has noticed that as the use of financial cards increased, so has the threat of card fraud.

Citing data from the Indonesian Credit Card Association, Aribowo, Bank Indonesia’s head for the Payment System Policy and Development Bureau, revealed in the recently-concluded Cards & Payments 2009 conference that losses from card fraud totalled Rp582 million in 2007, down by half from the previous year’s Rp1.05 billion, but more than 2005’s Rp362 million.

This, he noted, “may indicate that card fraud has not been reduced” and puts the payment industry in a risky position, adding that the figures are even likely to be under-reported because they are based on “recorded cases and limited to credit cards only”.

“Card fraud is undeniably a serious threat to [the less cash society initiative]. Other than financial losses, card fraud also makes people feel insecure when using cards as non-cash payment instruments,” he noted.

To protect consumers from card fraud, Aribowo said that the bank regulator is pushing the card-payment industry to move towards smart chips from magnetic stripes.

Smart cards are generally perceived to be more fraud-resistant than magnetic stripes because they use a more sophisticated system of encryption locks and keys to authenticate the card, transactions and the card issuer. Chips are also believed to be more resistant to skimming, or the duplication of information from the magnetic stripe card, and the fraudulent usage thereof.

“Evidently, the magnetic stripe card is more [vulnerable] to card fraud,” he said. “To increase the level of card secu - rity, [Bank Indonesia] requires creditcard issuers to migrate to chip-based technology” by this year. Issuers of automated teller machine and debit cards are required to follow suit subsequently.

The migration to chip-based cards, Aribowo added, is also to prevent card fraudsters from neighbouring countries that have already migrated to smart cards, such as Hong Kong, Malaysia, Singapore and Thailand, from moving their operations to Indonesia.

To view full story, get a copy of Retail Asia. To subscribe, please download the subscription form from http://www.retailasiaonline.com/subscription.html