B

ank Indonesia (BI) has officially required banks to shift their ATM and debit cards to chips from the current magnetic strips to protect customers from fraud.

The regulation — effective on Tuesday in conjunction with the release of the central bank’s circulation letter for the banking industry — includes a lengthy transition period lasting until Dec. 31, 2015, said BI director for accounting and payment systems Ronald Waas.

“We want cards to be safer, to avoid a repeat of a massive fraud in 2010, because the data in the cards can be easily stolen. With chips, we expect the data to be safer,” he told a press briefing at his office in
Jakarta on Tuesday. The chip card will ask for an at least six-digit personal identification number (PIN) to operate, Ronald said.

There will be 78 million chip cards circulating in the country by 2016, 23 million more than the current 55 million, which need to be shifted, he said, citing 8,000 of the current 40,000 ATMs which are not ready to read the new chip cards.

“Starting Jan. 1, 2016, across Indonesia, every transaction using ATM and debit cards issued by Indonesia-based issuers must be processed using chip technological standards with PINs of at least six digits,” BI’s circulation letter reads.

“Every transaction using ATM and debit cards issued by issuers outside Indonesia could be processed according to the existing technology.”

Otherwise, banks will be penalized, Ronald said. “We could withdraw licenses to issue debit cards. It’s for the customers’ safety.”

The central bank has worked with three major banks — Bank Central Asia (BCA), Bank Mandiri, Bank Permata — to prepare the necessary infrastructure, from the procurement of cards to ATM machines, for banks throughout the country to adapt, Ronald added.

“We will conduct the transition in stages, beginning from cards with the highest balances. The transition will depend on the card type — silver, gold or platinum. We will begin with the platinum ones,” Budi Gunadi Sadikin, director of micro and retail banking at Mandiri, said.

Budi declined to announce Mandiri’s total spending for the transition, but said it was “big”, with most of the spending going towards replacing existing ATMs with ones that can read the chip cards. One new ATM can cost about US$7,000, and Mandiri is planning to replace 2,000 of its total 8,993 ATMs next year, he added.

“If it was new procurement, we wouldn’t consider it an extra cost, while our EDC [electronic data capture for debit card readers] machines are on lease, so we can always replace them with those that could read the chip cards,” Budi said.