The safety pin

Written by Saikat Neogi | Updated: Apr 22 2014, 09:07am hrs
To make transactions more secure, the Reserve Bank of India (RBI) has made it mandatory for banks to issue PIN-enabled credit cards with embedded microchip.

While banks have carried out the regulators instructions by issuing EMV (Europay, MasterCard and Visa) credit cards embedded with electronic chip, many retail merchants are yet to install the machine required to facilitate PIN authorisation for chip-based transactions. As a result, many card holders continue to make transactions without PIN authorisation.

The additional security measure is a part of global standards for inter-operation of integrated circuit cards at the point-of-sale terminals for authenticating credit card transactions. The microchip stores the information of the card holder and the PIN comes in an encrypted form known only to the card holder.

A chip-based credit card offers a more secure payment mechanism compared to the traditional magnetic stripe card. It also reduces the probability of skimming or copying of personal data from the information stored on the card. Card holders do not have to pay any additional fee for an EMV chip and PIN-enabled card.

The use of EMV credit cards at merchant outlets involves a three-way process. First, the merchant inserts the card in the slot and enters the transaction amount. The PoS machine then requires a four-digit PIN to be entered by the cardholder to authenticate the transaction. After the correct PIN is entered, the transaction is approved. A card holder gets three attempts to enter the PIN after which the transaction is declined. If a transaction is made without PIN authentication, the bank will be held responsible for any kind of fraud, especially in case of stolen cards.

However, transactions made online or over the telephone with a chip-based credit card will be done in the same way as with those without chip. An online transaction will be conducted using the three-digit verification code (CVV) on the back of the credit card and a one-time password (OTP) for authorising the transaction.

Once the bank issues a EMV chip-based PIN credit card, the PIN is dispatched separately to the card holders mailing address. If you dont receive or forget the PIN, you can log on to the banks website and request a new PIN, which will be sent to the mailing address again.

The PIN can be used for cash withdrawals as well. All add-on cards will also come with the EMV chip and PIN card. The PIN will be different for all add-on cards.

Globally, EMV standards were initiated with the collaboration of the three payment organisations Europay, MasterCard and Visa. The card and the acceptable devise communicate together and indicate what applications they have in common. The online data authentication further ensures that the card used in the transaction is actually issued by the bank.

Many countries are gradually switching to EMV to address counterfeit frauds. Malaysia and the UK migrated to EMV chip card in 2005, while Singapore adopted it in 2011. In Australia and New Zealand too, banks have started issuing these cards. Brazil and Mexico have implemented the additional security measure as well.

An RBI Payment System Vision Document report has stated that just 0.6 million of the 10-million-plus retailers in India have credit or debit card payment acceptance infrastructure. The main focus of the vision document is to provide a thrust to modern electronic payments that are safe, simple and low-cost.

While it is convenient to swipe your card for payments, you must pay your dues on time. Banks usually give a credit window of 4-5 weeks to card holders. For that particular period, the credit card spend is like an interest-free loan, which can be useful to a borrower who repays the amount before the due date. The monthly payment should at least cover the minimum amount due, which is usually calculated as 5% of one's balance outstanding.

Rolling over credit is much more expensive than taking a personal loan, which comes at interest rates of between 18% and 24% per annum. Moreover, some banks still charge an annual fee just to keep your card active, especially for cards that offer special privileges and loyalty. Most card issuers levy charges like cash advance fees, late payment charges, ECS/cheque bounce charges, railway ticket booking or cancellation surcharge for counter bookings, fee for statement request for beyond three months, outstation cheque charges and foreign currency transactions.

The credit limit is decided by the card issuer at the time of giving the card and the available credit limit is printed at the time of generation of each monthly statement.

The limit can be raised by the bank after some years if the card holder has a clean payment history and makes regular transactions. While most banks fix the limit at the time of issuing the card depending on your income, you can request the bank to increase the credit limit after some years as your income increases.