Tamper-proof microchip bank cards on the way

In a few years New Zealanders' eftpos and credit cards are likely to be replaced with ones carrying an embedded microchip which is virtually impossible for fraudsters to copy.

Iain Jamieson, New Zealand country manager for Visa International, told the Weekend Herald he was confident the banks would have all made the switch to "chip and pin" cards by 2010.

He said eftpos terminals and automatic teller machines (ATMs) were being upgraded to handle chip cards.

"Chip cards are going to be the future payment cards in New Zealand and on a global basis."

He said their cost was coming down and they had many benefits, including being much safer from card fraud.

At present data on credit and bank cards in New Zealand is contained on a magnetic stripe which can be copied if passed through a reader in the illegal process known as skimming.

On a chip card, said Mr Jamieson, all the data was encrypted and could be read only by the banks which held the keys to unscrambling the information. "There is no chance of any criminal breaking the keys."

The chip was also programmed to shut down if "fiddled with".

He said both Visa and MasterCard had worked on rules surrounding the use of the smart cards in a set of international standards known as EMV (Europay, Mastercard, Visa).

The recent skimming fraud in Auckland ATMs had highlighted the risk of sophisticated card fraud, and overseas countries were moving towards chip cards.

They had been fully adopted in Britain and Malaysia, and Thailand, Korea, Japan and Taiwan were heading in the same direction.

Chip cards were not just about better security but also allowed greater functionality, he said. In Malaysia they could be used on the underground, for storing health information and for online banking.

Westpac had already paved the way for enhanced security in electronic payments with New Zealand's first end-to-end chip card transaction.

Ross Jackson, Westpac's head of cards business, said chip cards were likely to be the predominant bankcard in New Zealand by 2010.

Westpac had already made some preparations for chip cards such as the recent nationwide upgrade of merchant payment terminals which allowed it to process transactions made with chip-enabled cards.

That was the first successful implementation of chip technology through all phases of the electronic transaction process in Australasia, Mr Jackson said. But while chip cards significantly reduced the risk of fraud, they were not a magic bullet as cards with a magnetic stripe remained vulnerable.

Clayton Wakefield, ASB Bank's head of technology and cards, said chip cards were on its radar but they were not necessarily the way to go.

He said New Zealand had relatively low levels of card fraud compared with the countries which had turned to chip cards because their electronic payment systems were being abused.

New Zealand had a very sophisticated payments ability with widespread and effective eftpos ability using pin numbers, he said. "We have one of the highest penetrations in the world, right down to the local dairy."

Mr Wakefield was not therefore convinced there would necessarily be a huge customer need for chip cards and banks were wary of the costs.

Other steps were under way to keep the present systems safe such as the installation of green sleeve devices on ATMs and other anti-skimming techniques.

Darryl Roots, spokesman for NZ's largest eftpos network operator ETSL, said all retail eftpos machines should be able to read chip cards by 2009. The first 35,000 had been upgraded and 40,000 more would be done soon.