Move to Chip- based cards to prevent credit card frauds

The Times of India reported today, how a global gang skimmed Indian credit cards of 30 crores in two months. The article reports; Top card issuing banks have seen unauthorized transactions totalling around Rs 30 crore so far by an international syndicate, which bankers believe is capturing card information through retail outlets that have been compromised. Read story here.

Another example this report on NDTV’s website posted on August 6, 2012, says: An engineer was arrested for a credit card fraud of nearly Rs 1.25 lakh and investigators are looking into the fraudster’s possible connection with an organized gang of cyber criminals.Reports of credit and debit card frauds, both online and off line are not uncommon. While the Reserve Bank of India (RBI) has taken the initiative to make two-factor authentication mandatory for card-less transactions (e.g online), the same requirement for card transactions is at least a year away.

But why wait till then? If you are looking for a new credit card or simply want to make your current credit card more secure, choose the chip-based card. We tell you more about chip based cards, how they are better than the magnetic strip base cards and more, through a conversation between two friends, Meera and Sid, Firstpost’s imaginary helpers.

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Meera is sitting in a coffee shop waiting for Sid and killing time by checking out various bank websites for a new credit card. Sid walks in…

Sid: Hey Meera, sorry, I made you wait …

Meera: (A little upset with Sid) Nope! I have better things to do. Just checking out a new credit card.

Sid: In that case, please ensure you look for a chip-based credit card.

Meera: Just because you are a banker, are you trying to show off? (still in an upset tone)

Sid: Okay, as you say. But keep in mind that a chip-based card is a smarter choice.

Sid: (Taking out two cards from his wallet). See, this card (A), it has a black magnetic strip on its reverse. This technically, is called a magstripe card. (Pointing to the other card) While this card (B) has a SIM-card kind of chip on the face of the card. Such a card is called a chip based card.

Meera: And I should go for a chip-based card because…

Sid: It’s more secured.

Meera: How so? (Suddenly no longer upset, but rather curious)

Sid: See, the magnetic strip on magstripe card stores all your account information. When you use the magstripe card on the card- machine (Electronic Data capture in banking parlance), the machine processes the transaction by connecting it to the bank’s platform.

Meera: So, how does that make a chip-based card safer?

Sid: (Obviously enjoying the attention) Hear me out. Unlike the magstripe card with a chip-based card, the account information is stored on the chip and that too in an encrypted format.

Meera: Hmnnn, encryption makes the data safe?

Sid: Totally, also most chip-based cards come with a four digit Personal Identification Number. Like the PIN, you use at the ATM.

Meera: How does the chip-based card work then?

Sid: Well, it’s simple. When the card is used on the card-reading machine, it reads the data and asks for the PIN. Only after you punch in the PIN, your transaction goes through.

Meera: (Almost convinced and no longer upset with Sid) This sounds nice. So, without the PIN, the card won’t work.

Sid: Absolutely. The encrypted format makes it extremely difficult for fraudsters to copy your data and the PIN adds to the level of security.

Meera: So, you are telling me that’s not possible with a magstripe card?

Sid: Yes, since the chip based card stores the data in an encrypted format, the data cannot be skimmed.

Meera: lol, hahah….Skimmed?

Sid: Uff, not that skimmed. Skimming here means copying you account information and data to make fake or cloned cards. Such cloned cards are used for shopping by fraudsters. I am sure; you don’t want that to happen to you?

Meera: Never, I know of someone whose card was use by a fraudster for over lakh rupees.

Sid: See, even RBI has asked banks to move away from magstripe cards to chip based cards by next year.

Meera: Ya, but that’s next year, I need the card now. Do any banks offer such cards today?

Sid: Sure, most major banks like Axis Bank Ltd, State Bank of India, HDFC Bank Ltd, ICICI Bank Ltd and Kotak Mahindra Bank Ltd etc, offer chip-based cards. In fact, some banks offer cards which are both chip as well as magstripe based.

Meera: I hope these chip-based cards are accepted everywhere?

Sid: Most places accept chip-based cards.

Meera: How can you be sure of that?

Sid: (In a confident tone) I am a banker, and sometime back I read a report from RBI stating that around 90% of point of sale terminals are ready to accept chip based cards. While the report also said that ATM’s are not fully ready yet, around 50% ATMs need an upgrade and they would be good to use. It’s really a matter of time, before all ATMs accept chip-based cards.

Meera: Hmm, and why would I need to use a credit card at an ATM anyway? Unless, I need to take cash out on a credit card, which even I know is not a healthy financial habit. But about chip-based debit cards?

Sid: Those banks which offer chip-based debit cards have made their ATMs ready.

Meera: Okay, anything else I need to know.

Sid: See, some banks offer both a chip-based as well as magstripe facility on the same card. So, in case your shopping center does not accept the chip base data, the magstripe data would work.

Meera: You told me that already.

Sid: What I mean is, with some chip-based cards you may not get a PIN, but you would have to sign, like you do with a regular magstripe credit card.

Meera: But that’s still more secured than a magstripe card. Right?

Sid: Totally, also if you have an old magstripe card and if your bank offers a chip based card, just let your bank know and they will give it to you.

Meera: Sounds good. Let me check with my bank and get back to you later. Now tell me which movie are we planning to go to?

Sid: Chip(munks)?

Meera: Ha, very funny. Batman, may be!