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Chips Down for Indonesian Holders Of Old-Style Credit Cards
Ardian Wibisono | December 29, 2009

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If you are still using a credit card without an electronic chip, you ought to upgrade it before Jan. 1 if you want to buy anything in the New Year’s sales.

Bank Indonesia has stipulated that from the start of January, consumers will no longer be able to use the less-secure, magnetic stripe cards in shops.

“Starting January 1, the domestic credit-card payment system can only accept chip-equipped credit cards,” Sri Suparni, deputy director of accounting and payment systems at the central bank, told reporters on Tuesday. “The policy will not be a problem for tourists or foreigners as the system will accept magnetic stripe cards issued abroad.”

Sri said the policy would not come as a surprise to banks or credit-card users since it should have been implemented in 2008 but was delayed because banks and retailers were not properly prepared.

She added that less than 0.4 percent of the 10.26 million credit cards in circulation are of magnetic stripe variety. Those who still hold an old-style card should just go to their bank and ask for replacement, she said.

Banks have been issuing the chip-enabled cards since the industry was first informed of the policy in 2007.

Farida Peranginangin, the central bank’s deputy director of payment system surveillance, said that since then the number of frauds has fallen significantly.

“Chips provide more secure information encryption compared to the magnetic stripe. Neighboring countries such as Malaysia started to implement chip credit cards in 2006, pushing fraudsters to other countries that were still using magnetic stripes. That is why the number of frauds was very high here in 2007,” she said.

Bankers have welcomed the decision and are optimistic that they can meet the target set by the central bank to upgrade all credit cards by next year.

Ina Susanti, Standard Chartered Indonesia’s general manager for consumer banking, acknowledged that the cost of converting all of their cards was high. However, she explained that it was compensated for by the lower risk of losses from fraud.

“If a transaction is proven to be fraudulent then the bank is responsible for the losses, and as chip cards minimize the potential for fraud, they will benefit us,” Ina said.