11 April 2014

Kenya: Banks Race to Beat Deadline for Liability Shift in Card Fraud

THE level of compliance by banks on the new banking industry's guideline to move from fraud-vulnerable magnetic strip to more secure chip debit and ATM cards remains unclear even as the Kenya Bankers Association extended the deadline to May 31.

With the extension, the 44 commercial banks will now not bear full liability in case of a financial loss through card fraud until after May 31. The initial deadline was March 31.

Kenya Bankers Association yesterday termed as "good" the progress by its members in issuing the chip-based Europay MasterCard Visa cards.

Chief executive Habil Olaka said the umbrella body was still tracking the progress to ascertain the actual level of migration.

"The liability shift will take effect from May 31," Olaka told reporters in Nairobi. "If, after May 31, a bank loses money because a card which is not compliant was used on the system then the bank... will bear full liability."

Majority of commercial banks are texting their customers to replace their magnetic strip cards with new chip cards. A few have also complimented their awareness campaign through mainstream media.

Some like Kenya Commercial bank are experiencing technical problems in the switch which has greatly interrupted their ATM operations.

"As with technology procedures, some unforeseen challenges are experienced and this being continuously addressed to fine tune the system until it reaches the desired optimal operating level," the bank said in an emailed response to the Star on Monday."For customers who are unable to withdraw from the ATM, they can also access the branch network services and they will pay the normal (Sh30)ATM fee on withdrawal during this period."

The migration to the EMV card platform started in April last year when the lenders collectively agreed to move with the rest of developed financial markets in the phase of growing card fraud.

The first phase ended with the successful upgrade of ATM infrastructure on September 30, 2013. It was followed by the December 31 upgrade of point of sales which paved way for the March 31 deadline which the banks failed to meet.

Olaka said in an earlier interview on March 24 that the first two phases went on smoothly as planned but admitted banks were struggling in the third phase.

"We understand some banks could be facing operational challenges in issuing new cards," he said. "As an industry, we have to appreciate the compliance levels and reasons for non-compliance first(before taking an action)."

The ICT Association of Kenya has said crime trends in financial services sector have shifted from physical settings to the digital space.

"The reason we are not having as many reports of bank breakages as in the past may not necessarily mean the threats of robbery have gone down, it's because the robbers are now targeting online platforms where bulk transactions are happening," secretary general Kamotho Njenga said on March 28.

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