Magnetic stripes on bank cards appear to be on their way out as South Africa’s financial institutions look to more modern chip and tap-to-pay features to bolster the security of card transactions.

As part of this drive, First National Bank – working with state-owned roads agency Sanral – has rolled out new contactless payment terminals at tollgates along the N3 and N4 routes.

“The rise in magstripe fraud and the security risk of offline magstripe transactions has been steadily growing, impacting both banks and cardholders financially,” said Daniel Kaan, CEO of the commercial and corporate transact pillar at FNB Commercial.

“This led to an industry-level decision to align on the decommissioning of magstripe terminals and accelerate the use of contactless technology. In addition, the roll-out of contactless cards by issuers has ensured a ubiquitous acceptance mechanism for customers travelling the highways.”

The move comes after numerous FNB and Standard Bank customers took to social media in recent days to report fraud on their accounts associated with the reference “FACEBK”. Reddit posts from as far afield as the Philippines suggest the scam is an international phenomenon involving the purchase of Facebook ads using the stolen funds.

It has not yet been confirmed by the banks how customer card data was compromised, but an X post by “retired banker” Duncan Beach suggests magstripe card skimming at toll gantries may be to blame.

“I received a new credit card from FNB. The only time it was out of sight for a few seconds was at the two tollgates between Sasolburg and Bloemfontein on the N1 last month. My suspicions lie with Sanral’s toll operators, who may have cloned my card behind that window,” Beach posted.

Fleet industry

According to Discovery Bank, magstripe transactions at tollgates are offline and Pin-less, usually processed as batches at a specific time of the day. EMV (Europay, Mastercard and Via) chip-based transactions, on the other hand, require a live internet connection, are processed in real time and require authentication from the user.

However, Yatin Narsai, CEO of digital start-up Bank Zero, warned that the security of tap-to-pay transactions is removed if customers opt for Pin-less tap-to-pay options. He said disabling Pin-less tap-to-pay is the safest option, while setting a low value for Pin-less transactions is the next best step. Using tap-to-pay via tokenised cards on devices such as phones and smartwatches is more secure because users are required to unlock their device for authentication, Narsai said.

Other than FNB, Investec, Bank Zero, TymeBank and Discovery Bank have all confirmed that their cardholders will be able to use chip and tap-to-pay functionality at toll gantries that support the technology.

Read: Debit cards are rapidly replacing cash in South Africa

Customers can still swipe their magstripes at those gantries that are not yet enabled for tap-based payments. But FNB said magstripe swipes will be supported at tap-and-pay-supporting gantries for the next six months only on the N3 and N4 routes.

Fleet owners will have to upgrade fleet cards that do not feature EMV. According to FNB’s Kaan, the fleet card payments industry will migrate to EMV chip cards in the coming years as both issuers and acquirers use EMV technology that is aligned to the data requirements of fleet transactions.

“Unlike debit and credit cards, these transactions require additional data elements and industry alignment on what is provided when tapping/dipping at a terminal and hence requires additional effort compared to debit and credit cards. This impacts petrol, garage and fleet cards,” said Kaan.

Of the banks TechCentral queried, TymeBank and Bank Zero confirmed they do not allow magstripes to be used for payments. Both banks have magstripes on their cards, however, because ATM standards require them. In the case of TymeBank, which partners with Pick n Pay and others for rewards programmes, the magstripes are used to facilitate these loyalty schemes.

“We process all transactions via chip technology, effectively eliminating magstripe transactions from our payment ecosystem. Counterfeit fraud decreased significantly from 2022 to 2023 – by 33% for debit cards and 56% for credit cards. This fraud now accounts for less than 2% of total fraud, directly attributed to EMV adoption by both issuing and acquiring banks,” said Rohit Subramanian, chief strategy officer at TymeBank.

However, according to Discovery Bank, the industry’s desire to move away from magstripe payment is still a long way away due challenges in merchant readiness.

“With the use of magstripe being a fallback technology to EMV-based payments, issuance of cards without magstripe would realistically only be possible when all merchants globally have fully adopted the EMV-based payment technology,” said a Discovery Bank spokesman.

But the shift is happening.

FNB said motorists at selected toll plazas along the N3, N4 and Chapman’s Peak toll roads will from 1 December be able to use a variety of payment methods for contactless payments. More than 88 lanes have been switched on along the N3 route between Gauteng and KwaZulu-Natal at De Hoek, Wilge, Tugela and Mooi River plazas as well as the onramps and offramps.

Read: Tap to pay is becoming dominant in South Africa

An additional 73 lanes have tap payment terminals installed along the N4 toll route between Pretoria and Mozambique at the Diamond Hill, Middelburg, Machado, Nkomazi plazas as well as the onramps and off ramps,” said FNB. – © 2024 NewsCentral Media

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