Rapidly rising fraud caused by the skimming of magstripe bank cards combined with a shift in fraud liability is fuelling the migration of Latin American banks to EMV-based cards, according to delegates at last week’s Smart Card Alliance annual meeting.

A domestic liability shift took place in Brazil in March 2008, and is planned for October 2008 in Mexico and July 2009 in Venezuela.

“Banks in Brazil are in the middle of mass deployment of EMV cards, mainly motivated by fraud,” says Kim Hangoc, vice president, Gesto de Produtos do Centro de Excelncia for MasterCard Worldwide. “They are using chip cards and requiring a PIN for purchases, for both debit and credit cards. In Mexico the main motivation is not fraud but differentiation, and no PIN entry is required for purchases. Banks in Colombia, Venezuela and Peru have started issuing and are in various stages of testing or implementation. Banks in other countries in the region haven’t started issuing yet but are preparing,” he added. 

In Brazil skimming and cloned card fraud grew at a 43.5% CAGR between 2004 and 2006, according to Mario Mello, superintendente executivo de cartes, Banco Real ABN Amro. His bank has already issued two million smart bank cards and plans to issue double that number this year. One big plus for its customers is that if the stripe on a chip-equipped card is skimmed, Banco Real can block magnetic stripe transactions on the card but let the customer continue to make chip transactions until the card is replaced. More than 3,000 clients per month benefit from this service, improving customer satisfaction, said Mello, who estimates that 28% of POS terminals in the country now have chip readers. The bank also generates US$12.5 million per year incremental revenue from this service.

Banrisul, a large bank in southern Brazil issuing EMV bank cards, has cut its losses through fraud at chip-enabled merchant terminals to zero, according to Jorge Krug, senior IT Security Executive. Cloned card fraud on chip-enabled cards is also zero, he said. In addition, Banrisul has eradicated Internet shopping fraud on its chip cards by implementing a ‘card present’ PKI application for online payment for its customers. As well as the Banrisul-issued certificate for online banking, customers can obtain and use PKI credentials with Brazil’s national public key infrastructure, ICP-Brasil. 

Mexico is also migrating to smart bank cards with the liability shift effective from 1 October 2008, Carlos Avila, Operations Executive Director at Banorte, told conference attendees. He added that Banorte has issued 0.7 million EMV credit cards out of a total of 1.3 million, and has equipped 30,400 of its 33,700 merchant terminals with chip. Its remaining merchant terminals will be upgraded by the end of the year. He estimates that of the 16 million credit card accounts at six leading banks in Mexico, six million have been upgraded to chip. The focus is on credit accounts not debit, since the majority of debit accounts are used for cash withdrawals and not merchant payment, he said.