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Customer accounts at risk as banks delay migration

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Debit cards from different banks. Kenyan banks last year set a March 31 deadline to migrate to the Europay MasterCard Visa (EMV) platform to curb card fraud. Photo/FILE

Kenyan banks have left millions of their customers exposed to fraudsters having failed to issue the more secure chip-based credit and debit cards by Monday’s deadline.

As the deadline drew closer on Friday, the lenders said the March 31 deadline to migrate to the Europay MasterCard Visa (EMV) platform was no longer realistic because of logistical challenges.

Most banks said they would be asking the industry lobby, the Kenya Bankers Association (KBA), for an extension of the deadline citing difficulties in the issuing of chip-based cards, the last phase of the migration.

READ: Banks race to beat deadline for ATM cards migration

“It looks like we set an overambitious timeline,” said National Bank managing director Munir Ahmed during the release of the bank’s annual results last year.

Mr Munir said the deadline set by the industry in April 2013 may have been too close, taking into account the logistics involved in replacing an estimated 11 million cards held countrywide.

Commercial banks, through the industry lobby, agreed in April last year to fully migrate to the EMV platform by March 31, 2014 in a three-phased approach.

The migration was to start with the replacement of ATMs, followed by points of sale (POS) terminals and close with the replacement of the 11.5 million cards.

Kenya had 21,089 POS terminals, 2,487 ATM machines and 11.5 million cards in circulation at the end of last year, according to data from the Central Bank of Kenya.

The first phase of the migration was successfully completed in September while the second was completed in December. But it is the last phase that is proving to be a difficult nut to crack for most banks.

National Bank said it would first focus on replacing priority cards or those that are used frequently and as such are more vulnerable to fraud by April.

Middle tier lender Family Bank also said the Monday deadline was unrealistic, adding that it had asked for more time to comply.

“We are on track with the rollout of EMV cards. We have asked KBA and CBK for a possible extension of the deadline because we think there is need for overhaul of backend operations,” said the bank’s managing director Peter Munyiri.

“There is also lack of capacity by local card manufacturers to meet the huge demand,” he said.

Equity Bank, the largest bank by customer numbers, said it had so far replaced three million cards out of an estimated five million.

Standard Chartered said it was looking at June as a more realistic deadline for compliance while I&M Bank said it will begin replacing cards from April.

“It is a process which needs to be planned and executed in a phased manner to minimise customer inconvenience. This is what I&M Bank will be doing for its cardholders starting April and the whole process will take time,” said the bank’s marketing and product development general manager Suprio Sen Gupta.

Housing Finance said it had begun replacing around 60,000 cards and expects to complete the process in the next two months.

KBA expects that some banks may not be able to fully comply because of reasons beyond their control such as supplier delays, but insisted that the deadline would not be moved.

The association’s chief executive, Habil Olaka, told the Business Daily that losses arising from fraudulent card transactions would be incurred by non-compliant banks.

“We are not going to extend the deadline. We have to find a way of shifting liability,” said Mr Olaka.

The tough stand, he said, is meant to protect customers.

“The deadline for migration to EMV cards was a decision taken by the banks through their association, Kenya Bankers Association (KBA),” CBK said in a statement, adding that its sole interest was to ensure that payment and settlement systems are of the highest standards possible.

Kenyan banks lose as much as Sh3.8 billion through fraudulent transactions every year, according to findings by consulting firm Deloitte. Banks have insurance covers against fraud, but the entity that will finally end up incurring the loss will be determined on a policy-to-policy basis.

“If there was to be a fraud and the card used during the construction of the insurance contract is the magnetic one and no changes are made introducing EMV cards then the insurer will pick the claim,” said Association of Kenya Insurers chief executive Tom Gichuhi. Banks estimate that the migration will cost them around Sh2.5 billion.

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