Transformation of chip card by banks: Huge cost

Banks issues more chip cards for security

The use of chip cards will achieve many benefits. Photo: Internet

Huge cost

The use of chip cards helps banks issue Vietnamese domestic cards and have the potential to expand payment ecosystem into sectors such as health, transport and insurance, bringing many practical benefits and outstanding experiences for users. However, the transformation also faces many difficulties.

Tu Tien Phat, Deputy General Director of Asia Commercial Bank (ACB), said currently, 5-10 percent of ACB’s magnetic cards have been transformed into chip cards and all ACB’s ATMsaccept this new card. Regarding costs, he said ACB expects to spend about VND 400-500 billion on technology, including new payment trends by electronic wallets.

Nguyen Hung, General Director of Tien Phong Commercial Joint Stock Bank said that the cost of a blank chip card is seven to eight times higher than those of magnetic card, excluding other costs. Some banks also said, if the cost for making blank of ATM card by magnetic cards is about VND1,000-2,000/ card, the cost for making chip card is 15-20 times higher than of magnetic card, about VND 20,000-30,000/card. Many banks also offer free transformation costs from magnetic cards into chip cards for their customers, while the number of cards of each bank is in the millions and the cost for the transformation of ATM and POS is high.

According to the State Bank, as of the end of September 2018, 294,500 POS machines were installed nationwide. To upgrade all POS machines to meet standards of domestic chip cards would cost about VND 10 million per machine. The estimated cost to replace all POS machines is about VND 3,000 billion.

Therefore, many banks still delay the transformation due to high cost, especially small banks.

Nguyen Dinh Thang, Chairman of LienvietPostBank Joint Stock Commercial Bank, said investment in technology also needs a depreciation period, while to apply chip cards, the technology systems and terminal systems, ATM and POS system must be replaced, taking high cost. It also takes a lot of time to change chip cards for customers.

Make efforts for private interests and common goals

Although there are many difficulties, almost all banks have strong movements. At the beginning of the year, there were only seven banks participated in launching chip card, but currently, there are more than 20 banks ready for chip card transformation technology.

Nguyen Quang Hung, General Director of the National Payment Corporation of Vietnam (NAPAS) said by the first quarter of 2020, not only 20 banks and six chip card suppliers, it will increase to 26 banks and 10 chip card suppliers. This shows banks have actively participated in transformation.

Moreover, the transformation stems not only from banks' benefits, but also from the goal set by management agencies. From the end of December 2018, the State bank issued Circular 41/2018/TT-NHNN amending and supplementing articles of Circular No. 19/2016 regulating bank card operations. Accordingly, the State Bank requires that by the end of 2020, banks must finish the transformation of all ATM systems and POS machines, meeting basic standards on domestic chip cards. By the end of 2021, banks must transform domestic cards made from magnetic cards into chip cards (mounted with electronic circuits).

It is not only efforts of commercial banks, but also support from management agencies. Banks said the State bank needs to complete the legal corridor to issue and use chip cards effectively. In addition, there is a need to increase the connection and use of the same technology platform and synchronise the devices accepting cards between banks, as if each card issuer is based on a different technology platform, it will cause great costs. Napas also said it has finalised the set of chip card standards with domestic payment cards. This helps banks achieve the goal, although difficulties remain.