Smart cards are coming

  • 2003-03-27
  • Aleksei Gunter

Three major Estonian banks with a combined client base of almost 1 million customers will issue Visa chip cards this year. Hansabank already presented its first Visa International chip card on March 19.

Chip cards are a major step toward a cashless society because they are faster and provide better fraud defense, according to Anne Cobb, president of Visa's Central and Eastern European division, who received the first Hansabank chip card last week.

"We have one enemy, and that is cash," she said. "Cash is negative for the economy, and it does not earn interest when its under the mattress."

By the end of this year most banks in Western Europe will issue chip cards, according to Visa.

The chip card, or smart card, has an embedded computer chip - in addition to the regular magnetic strip - that enables faster payments, better fraud protection and several additional services.

It looks like a regular credit card, but it can hold hundreds of times more information than the old magnetic strip card. Additional applications include use as a phone card and detailed transaction records.

The new Estonian ID cards are based on the same technology.

Hansabank's first chip cards will be Visa Classic credit cards, and in June the variety of chip cards will include debit cards.

Hansabank is investing 50 million kroons (3.19 million euros) to put the chip card system online and the bank expects to issue 50,000 cards this year and retool all its existing ATMs to accept them by year's end.

Paying with a chip card also requires different technology - a special device that requires the cardholder to enter a personal identification number on a key pad. No signature is required.

"Today shop assistants sometimes ask for the card holder's ID even if the purchase sum is just 25 kroons," said Andres Liinat, head of Hansabank's retail banking department. "That problem will be eliminated by chip cards."

Chip cards are the next phase of credit card development and should be more permanent, Liinat said.

"The magnetic strip is a passing phenomenon," he said. "However, we have to keep it on the chip cards to provide their worldwide compatibility."

Along with Hansabank, two major Estonian banks – Sampo and Uhispank – plan to issue smart cards this summer and replace all existing cards with them by 2005.

All the cards will be made by Setec, a Finnish card manufacturer, using Smart Breakthough EMV technology, which is approved by Visa International and significantly reduces the cost of card manufacturing.