Banks in Vietnam are reluctant to replace their magnetic stripe cards with chip cards and are putting 70 million card owners at risk of identity theft and financial fraud despite a central bank requirement to make the transition.
The State Bank of Vietnam issued a plan in 2016 that required local commercial banks to make the switch from magnetic stripe cards to chip cards no later than December 31, 2020 since chip cards store data on integrated circuits protected by complex cryptographic algorithms and provide better security against fraud compared to magnetic stripe cards.
Although Vietnam’s commercial banks received the State bank’s directives more than two years ago and despite the advantages of chip cards to both banks and consumers, they have been reluctant to forward with due to concerns over the high transition costs.
Transition costs are estimated to be between $100 ~ $175 million USD since 90% of Vietnam’s 77 million bank cards use magnetic-stripe technology, which means 70 million cards are subject to the transition. Transition costs were estimated based upon an average cost of $1.5 ~ $2.5 USD per card and do not include costs related to adapting bank technology systems or costs related to the upgrades of ATM and POP machines across the nation.
Banks have stated that they are unable to move forward, not only because of costs, but because no official standard for chip technology has been issued by the National Payment Corporation of Vietnam (NAPAS), which is licensed by the State Bank to provide financial switching and electronic clearing services in the country.
Pham Anh Tuan, deputy general director of Vietcombank said that, “A common set of standards is needed to avoid future problems when inter-bank transactions are made.”
Pham also said that, “We are hoping to receive the standards the by the end of this year.”
However, Dao Minh Tuan, president of the Vietnam Bank Card Association, said he was not optimistic that the complete switch to chip cards could be done by the end of 2020, predicting that banks would need until 2022 to finish the transition.
Several major Vietnamese banks have also that they need more time to absorb the expected transition costs and that they should not be forced to accept those expenses in a short two-year period and that a five-year period would be more reasonable and beneficial for banks.
Security experts have warned that Vietnam’s delayed transition to chip technology will actually put the banks at greater risk since they will have to accept greater fraud write-offs, which will dramatically affect their profitability. One expert noted that delays will put the country at risk to become a ‘haven’ for card criminals from all over the world, as it is among the few countries where the use of magnetic swipe cards are still dominant.
Other experts have suggested that banks should have flexibility to create a “priority” plan for new chip issuance ~ focusing on customers with the highest risk potential and issuing cards to them first and then issuing cards for lower risk consumers later so that they can better control their costs and profitability.