Smart Cards Catching On in Indonesia

In an effort to combat fraud, chips are expected to replace magnetic strips on cards issued by financial institutions

The electronic payment space in Indonesia is expected to hot up in 2007, as financial institutions migrate from magnetic-striped cards to those with smart chips embedded in them.

Ellyana Fuad, country manager for Indonesia at Visa International, told ZDNet Asia via e-mail that the electronic payment solutions provider is on track with its plan to speed up EMV (Europay-Mastercard-Visa) chip migration next year.

The EMV standard ensures interoperation of the chip cards and point-of-sale terminals for authenticating payments, and is designed to help combat credit card-related fraud.

Citing a local news report, Visa noted that Bank Indonesia, the country's monetary authority, has targeted for Indonesian banks to fully migrate to chip cards by end 2008. So far, two banks, PT Bank Buana and PT Bank Central Asia, have started to issue chip cards in Indonesia. There are altogether 16 banks that issue Visa-branded credit cards in the country.

Malaysia, Japan, Taiwan and Thailand form the four main markets in the Asia-Pacific region for adoption of EMV cards, said Gordon Cooper, country manager for Singapore and Brunei at Visa International, at a briefing held in Singapore in July.

As of March 2006, there were 47 million Visa-branded chip cards in the region, representing some 16 percent of its total Asia-Pacific card base, he added.

Malaysia's chip migration effort, noted Cooper, is "effectively completed". Thailand is also "moving reasonably quickly" in its migration efforts.

Indonesia's chip migration program, as with the one in Malaysia, is expected to progress steadily due to the "presence of a government mandate", Cooper added. This contrasts with Singapore, where there is no enforcement of migration to EMV cards. Only one bank--the United Overseas Bank--has begun issuing chip cards in the island-state.

MAKING WAVES WITH CONTACTLESS. Visa is also expected to launch the Visa Wave contactless payment service next year, where Indonesian cardholders can make payments without having their cards leave their hands, Fuad said.

A survey commissioned by Visa earlier this year found that Indonesian consumers are interested in using contactless payment technology for small purchases and transport.

Indonesia will be the fourth country in the region to offer the Visa Wave program, when it is launched in 2007. The program was first launched in 2005 in Malaysia. Elsewhere in the Asia-Pacific region, Taiwan and Korea also offer the service.

Biometrics as a means of cardholder verification is also on the cards for Visa, noted Cooper. However, he did not specify when the use of biometric identification will be incorporated into Visa-branded cards.