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Banking & Finance

Behind the times

Released at: 07:59, 20/10/2014

Behind the times

Vulnerable magnetic stripe card technology makes Vietnam a tempting target for credit card fraudsters.

by Thong Dat

Investigators in Hanoi last month discovered a ring of hi-tech criminals from China using counterfeit credit cards to withdraw billions of Vietnam dong from major local banks. It was reported that the Chinese suspects set up four companies and used legal entities as a screen for their illegal activities. The four companies signed up for credit card payment services with local bank branches in Hanoi, including BIDV, Sacombank, VietinBank, Vietcombank, Eximbank and Oceanbank, to install POS (points of sale) machines. They then used counterfeit cards with stolen information to withdraw money.

With a significant young population, the emerging popularity of online shopping and advancements in e-banking services, Vietnam has been a land of opportunity for card issuers and, unfortunately, for credit card fraudsters as well. Figures released by the Vietnam Card Association at the end of last year showed that the total number of cards issued by 50 issuers reached more than 66.2 million, an increase of 20 per cent compared to 2012, of which debit cards, credit cards and prepaid cards accounted for 92.3 per cent, 3.67 per cent and 4.03 per cent, respectively. “From both a macro-economic and banking perspective, the local card market is considered very promising given the rising incomes among the country’s 90 million people, rapid economic growth, and improving legal system,” said Ms Nguyen Thu Ha, Chairwoman of the Vietnam Card Association under the Vietnam Banking Association.

However, it’s a fledging card market that, somehow, makes Vietnam a tempting target for credit card fraud. “There’s no doubt that Vietnam’s card market is still in its early stages and many commercial banks still use magnetic cards, which are not safe enough to protect card users’ information,” said Mr Nguyen Hai Ha, CEO of MK Smart. The second reason, he added, is that customers, when using cards, are yet to be vigilant in protecting their information.

Even though some local banks are starting to use credit cards with chip and personal identification number (PIN) technology, there are still banks that rely on magnetic stripe cards. Inevitably, international fraudsters migrate from places where security is high to places where it is low. It happened when neighbouring countries such as Malaysia and Indonesia introduced chip and PIN cards some years ago, causing credit card fraud to plummet there but to increase in Thailand and now in Vietnam. It also appears that the vast majority of credit card fraudsters in Vietnam are from China, as it’s geographically easier to transfer the machines required to make fraudulent cards.

Magnetic cards versus chip cards

Magnetic stripe technology allowed for the card issuer to be contacted electronically, and the fundamental flaw of the system was the weakness in the authentication of the transaction. Worse, the magnetic stripe itself was particularly vulnerable to information theft as the cards could be easily cloned. Analysts believe that credit card fraud will continue until the magnetic stripe, which can also access account information, is phased out.

Meanwhile, chip-based card systems refer to the computer chip embedded in a smart card, and the PIN number that the customer must use to authenticate transactions. This generic term applies to any smart card technology based on the security standard known as EMV (Europay/MasterCard/Visa); the companies that originally developed the standard, in 1994. The major difference between chip cards and magnetic cards is in terms of security. Switching to chip-based cards offers better security compared with magnetic strip cards since it is difficult to duplicate encrypted data. The PIN requirement adds another layer of security, even if users lose the card. The benefits offered by chip cards clearly explains why chip-based technology is fast becoming the global standard for ATM card security, with chip cards now being the dominant card type for transactions in Europe and, increasingly, in Asia.

The migration from magnetic stripe to chip cards, in theory, will involve various stakeholders in the process. Firstly, banks will need to upgrade their system, with changes or upgrades depending upon the final chip specifications or technology adopted. They will also need to issue new cards to customers. Merchants and retailers will have to upgrade their POS to support the new chip card and consumers will need change their existing cards to the new chip-based cards.

Local hesitation

The rising number of card-related crimes being detected again highlights that risk still hangs over consumers. Over the years, efforts have been made to encourage the switch from magnetic cards to chip cards, but local banks have been reluctant to take part in the process. “While banks around the world have switched to cards with embedded chips, making it very difficult to counterfeit, local banks haven’t completely adopted the technology,” said MK Smart’s Mr Ha. “It has