TALLINN - Estonian banks have adopted cutting edge technology to protect themselves and their customers from growing credit card fraud. Both Hansapank and Eesti Uhispank, the two largest banks in Estonia, have committed themselves to replacing their cli
The old days of swiping a magnetic strip card and signing off on a transaction will be a distant memory in only a few years, the banks say.
"Magnetic strip technology is old fashioned. If you have the right equipment you can easily create a card and use it," says Tonu Ots, project manager of the chip-card project at Hansapank.
Hansapank, the most capitalized corporation in the Baltics, has been issuing chip cards for more than a month now and has invested $5 million in the process that involves creating the cards, educating the customers and replacing old shop terminals that cannot read the chip technology.
"Most of the chip cards are being issued through routine card renewal. You can also request a chip card. The customer has the possibility to choose one if they want," Ots says.
Fraud prevention is definitely at the heart of the new investment in chip cards. Ots explains that credit card fraud is increasing on a global level by 50 percent to 60 percent each year. For these reasons alone Visa Mastercard has mandated that all of its affiliated banks begin replacing the old magnetic strip cards with chip cards.
"The trend is pretty dramatic. Most of the fraud is coming from lost and stolen magnetic strip cards. Also, in reality only 25 percent of merchants verify their customers' signatures," says Ots.
The manager adds that while fraud is not that high in Estonia, it is better to be safe than sorry, and that due to Estonia's small size putting the new technology into place should not be too difficult.
Still, there have been some obstacles to making chip cards a way of life for Estonians overnight.
Many of the shop terminals in Estonia are outdated and cannot read chip technology. Hansapank has invested much of its money for the program in setting up stores and boutiques with the technology. The upgrades are provided with no additional cost by Hansapank, which owns much of the equipment anyway.
Much of the time the terminals can be updated with relative ease by simply attaching a chip reader. However, many must be replaced completely.
In addition, many of the biggest players in the Estonian market have not been updated with chip reading terminals yet. Ots says that 2,000 smaller merchants have had their terminals upgraded or replaced - which accounts for approximately 25 percent of all terminals in Estonia.
Another dilemma has been dealing with customers who are slow to adapt to using the new technology.
The new chip cards issued by the bank also contain a magnetic strip, in case cardholders face a situation in which no chip-reading terminal is available.
Tiivi Toor, a clerk at the Apollo book store in Tallinn's Old Town, says that very few of her customers have the chip cards, and many of those that do forget their pin numbers.
"We are only getting 5 or 6 customers a day that have chip cards, and we have had some cases where customers couldn't remember their code," she says.
Ots understands that adapting to new technology takes time.
"The most difficult part is for the cardholder to remember the pin. When the locations that use the chip technology increase, they will be using the pin more often," he says.
"When 25 percent of stores with chip reading technology reaches 75 percent, it won't be a big problem anymore," says Ots.
There also have been some complaints that the verification process for chip cards takes longer than the process did for the older magnetic strip cards.
But Ots says that much time has been spent comparing the time for magnetic strip and chip card transactions and that chip cards are indeed faster. The reason people think chip cards take a longer time is because in the past they had to wait for verification and provide their signature.
"There is a psychological effect that makes a person think the chip card is slower, because with the old mag-stripe [magnetic strip] cards there were lots of activities for the customer to do," he says.
Meelis Nurk, deputy director of e-technology and operations at Uhispank, concurs when it comes to the disadvantages of chip cards.
"Each new technology will cause confusion," Murk says. "After three or four times it should become easier to use this technology. It shouldn't be too hard to remember four numbers at the point of sale, hopefully," he says.
Murk points out that chip cards have been tried and tested throughout different markets in Europe.
In order to keep up with the new technology, Uhispank has spent approximately 15 million kroons (1 million euros) on updating its clients with chip cards. While none have received cards yet, Uhispank will officially launch the program in one month.
Murk reiterates that protecting Uhispank and its customers from fraud is the number one concern.
"There are different ways of fighting fraud. A pin code can protect in a way no merchant can. Mag stripe is nothing more than a magnetic tape. It is very easy to copy. The chip card is a bit more clever than mag stripe were because you can't access the information on a chip without a code," he says.
Murk says that since all of Uhispank's cards will expire within a one to two year frame, all of its customers should have the technology by 2005.
He also predicts it will cost Uhispank 25 million more kroons to upgrade store terminals to read chips. Uhispank also has been educating its customers through the mail, and merchants at the point of sale.
"Fraud in Estonia isn't so bad - our volumes are smaller. Still if small Estonia doesn't have the technology, and the rest of Europe does, it means that they will come and attack us. Nobody wants to be the weakest link in the chain," he says.
One interesting point Murk makes is that chip technology does not stop at the pin code.
Chips can contain many different programs, from carrying pin codes for credit cards, to containing information about frequent flyer miles.
"A chip also has more memory, so it is possible to put several applications on a chip," Murk says. "The applications don't only have to be for credit and debit, but other 'loyalty' based applications - such as frequent flyer miles and bonus points. There are lots of ways we can use a chip," he says.
Still Murk says that introducing chip technology to Estonia should be done very gradually.
"The general approach of our bank, and others, is to do things the simple way. Once the public gets used to this, then we can think about adding other applications," he says.
"Each new technology will cause confusion," Murk says. "After three or four times it should become easier to use this technology. It shouldn't be too hard to remember four numbers at the point of sale, hopefully," he says.
Murk points out that chip cards have been tried and tested throughout different markets in Europe.
In order to keep up with the new technology, Uhispank has spent approximately 15 million kroons (1 million euros) on updating its clients with chip cards. While none have received cards yet, Uhispank will officially launch the program in one month.
Murk reiterates that protecting Uhispank and its customers from fraud is the number one concern.
"There are different ways of fighting fraud. A pin code can protect in a way no merchant can. Mag stripe is nothing more than a magnetic tape. It is very easy to copy. The chip card is a bit more clever than mag stripes were because you can't access the information on a chip without a code," he says.
Murk says that since all of Uhispank's cards will expire within a one to two year frame, all of its customers should have the technology by 2005.
He also predicts it will cost Uhispank 25 million more kroons to upgrade store terminals to read chips. Uhispank also has been educating its customers through the mail, and merchants at the point of sale.
"Fraud in Estonia isn't so bad - our volumes are smaller. Still if small Estonia doesn't have the technology, and the rest of Europe does, it means that they will come and attack us. Nobody wants to be the weakest link in the chain," he says.
One interesting point Murk makes is that chip technology does not stop at the pin code.
Chips can contain many different programs, from carrying pin codes for credit cards, to containing information about frequent flyer miles.
"A chip also has more memory, so it is possible to put several applications on a chip," Murk says. "The applications don't only have to be for credit and debit, but other 'loyalty' based applications - such as frequent flyer miles and bonus points. There are lots of ways we can use a chip," he says.
Still Murk says that introducing chip technology to Estonia should be done very gradually.
"The general approach of our bank, and others, is to do things the simple way. Once the public gets used to this, then we can think about adding other applications," he says.
