Until now the majority of debit cards issued around the world have been based on magnetic stripe technology - and this method has served consumers well for three decades. But the smart card is waiting in the wings, and, by combining with existing magnetic stripe technology, is going to bring with it leaps in security, features and convenience.
This is according to Pierre Kotze, financial services executive at smart card manufacturer, NamITech, the IT arm of the JSE Securities-listed Nampak group.
"Until now the majority of debit cards issued around the world have been based on magnetic tape technology. This is true for the Visa Electron debit card and MasterCard Maestro debit card. Magnetic stripe technology has provided cardholders with convenience and dependability at the point of sale for nearly three decades. In co-operation with the smart card, this technology will continue to serve cardholders into the foreseeable future," Kotze reckons.
While many consumers might wonder what a smart card is, millions of people have already been introduced to them via the subscriber identity "SIM" card in the mobile phone, he explained.
The smart card application, however, gives a higher level of security than the magnetic stripe method. Smart cards give the bank control over the actions of their cardholders by controlling the number and/or value of transactions that can be completed offline prior to the requirement of an online authorisation. As many authorisations can actually be handled offline, both banks and merchants can save on telecommunications costs. Furthermore, the consumer receives an improved service. With improved risk management, banks can also more safely offer debit card payment facilities to higher risk market segments.
Today it is taken for granted that the majority of magnetic stripe payment cards are accepted at most merchant terminals. "This is no coincidence," said Kotze, "but the result of close co-operation between major payment providers to establish global standards and specifications for magnetic stripe technology. Already organisations like Europay International, MasterCard International and Visa International have joined forces to facilitate the migration to smart card technology for debit and credit smart cards.
"What is also going to happen in the near future," he said, "is that more and more POS terminals will be able to accommodate smart card transactions. Indeed, for a transition period, POS terminals will operate with dual functionality, and will be able to handle both smart card and magnetic stripe technology. A lot of consumer outlets have already installed terminals that can read smart cards - and it is expected that, by the end of 2004, most POS terminals will be able to read smart cards."
Right now - besides the ongoing popularity of magnetic stripe-based debit cards - several SA companies are at the forefront of smart card development. Integrated Card Technology, a subsidiary of the NamITech group, for instance, has been closely involved in the development of the SIM card - which is essentially a smart card at the heart of every mobile phone. This expertise also extends to the banking industry, where developments are currently underway to deliver the next generation of smart debit cards to the South African banks. "And this collaboration between debit and smart cards," said Kotze, "is going to be a big market in SA."
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