Security concerns in smart cards

R. G. Bhatnagar

SMART cards offer the ability to manage or control expenditures more effectively and effectively reduce the chance of fraud, paperwork and eliminate redundant, time-consuming forms.

Moreover, cardholders can use their cards to make payments across a wide range of new delivery channels such as the telephone, interactive TV sets and the Internet.

Key concerns: Smart cards are bound to become attractive as they attempt to address two key concerns _ the need for greater fraud control and better credit-risk control management tools. One of the consumers' lingering worry is unauthorised and fraudulent use of both credit and debit cards and the prospect of consequent liability, in case of lost or stolen cards. Also, fake electronic cards have surfaced.

The New Delhi police are reported to have recently arrested two British nationals who were allegedly using fake credit cards to purchase jewellery. It came out during investigations that some persons had developed the expertise to duplicate credit cards using machines installed in various departmental stores in England. When a person swipes his credit card on the machine, the electromagnetic code gets registered, and the computer chip carrying this electronic code is copied on to another chip and, thus, a fake credit card is created.

Security: Smart cards offer far greater security to the consumer than the magnetic stripe cards. This enhanced security becomes very relevant in the online environment. In addition, smart cards allow consumers to make secure electronic commerce purchases anytime, anywhere. This is simply not possible today because when you make an online purchase, the electronic proof of your identity (validated by your bank) is actually locked inside your PC. But smart cards carry this electronic proof, thus, allowing you to make secure purchases anywhere. This should, eventually, lead to a dramatic explosion of e-commerce around the globe.

Mondex payment system: Based on the smart card technology, a payment system popularly known as Mondex has been developed by MasterCard, which offers an alternative to paying cash for goods and services. To date, Mondex franchises have been sold in over 50 countries on five continents, with a potential card base of three billion people.

Mondex electronic cash smart cards store and dispense cash electronically, making bills and coins less necessary. A single card can store up to five different currencies. It transfers funds over phone lines, making it easier to reload the card. A Mondex wallet allows person-to-person payment.

There is no question that the chip-based smart card technology promises a new era in electronic payments for consumers all over the world. This is likely to be a boon for e-commerce, which is expected to cross $320 billion by 2002, by bringing two essential enhancements to this burgeoning marketplace: Enhanced security and portability.

In fact, in recent years, the telecommunications, transportation, personal computer/software industries, as well as governments around the world have been aggressively moving to incorporate smart card technology into their businesses.

The banking industry in India, under the guidance and supervision of the Reserve Bank of India, has, therefore, an important and onerous responsibility to ensure that consumers take benefit of the new products at the earliest.

For the purpose, while the banks (and other financial institutions) have to show due dynamism and imagination in evolving and introducing new financial products, the RBI would have to ensure that adequate systems are in place to prevent abuse of these products by some unscrupulous elements.

In addition, the issue of legal liabilities and transparency (to prevent consumer exploitation) has also to be addressed simultaneously. In this connection, various provisions of the Information Technology Act, need to be enforced expeditiously and diligently.

While regulators in some advanced countries have begun adopting independent approaches to tackle these issues, a consensus approach seems necessary. Electronic payment technology is crucial for development of international trade and commerce and has a wide range of other applications. No artificial geographical barriers can, therefore, be permitted to come in the way of its sustained growth.

,wr.5p>(The author is former Chief General Manager, State Bank of India.)

Pic.: The launch of the `money smart' card from IDBI... There is no question that the chip-based smart card technology promises a new era in electronic payments for consumers all over the world. This is likely to be a boon for e-commerce, which is expected to cross $320 billion by 2002.

Picture by Paul Noronha

This is the second and concluding part of the article. The first part was published on December 17.