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HindustanTimes Tue,23 Sep 2014

Virtual credit cards: Future of money

Mahua Venkatesh , Hindustan Times  Mumbai, April 10, 2014
First Published: 23:59 IST(10/4/2014) | Last Updated: 08:47 IST(11/4/2014)

You can't get to flaunt it, but they may be easier to use, as safe if not safer — and cool in a geeky way. Credit cards, long fancied as status symbols with their flashy looks in rich folks' wallets, is distinctly acquiring a quiet new flavour in the digital era.

And then, they are no longer about rich men and women for card issuers such as MasterCard and Visa, which are now moving to tap new opportunities in parts of the planet untouched by banks.

In India, several banks and credit card issuers including SBI Cards — a joint venture between State Bank of India and GE, ICICI Bank, Citibank, Axis Bank and HDFC have already launched virtual credit cards to facilitate e-commerce, which is a major force driving the surge of virtual credit cards.

Virtual credit cards are not issued physically. Credit card holders can use their cards by accessing their Internet banking facilities and providing their card details. The bank generates a virtual card that has a 16-digit card number, expiry date and CVV number, just like real plastic cards — or they generate a masked equivalent of your real card (see graphic). In the case of a temporary virtual card, consumers can top up their cards with as much money as they require and the requisite amount will be credited by the bank from the anchored account. This is a bit like creating a prepaid card out of a credit or debit card and the purpose is to make online transactions safe.

"Currently, there is a physical form to the credit card but your credit card can be virtual too and soon that will be the case," Pallav Mohapatra, chief executive officer of SBI Cards, which partners with GE, which is the third largest credit card issuer in the world.

As a logical next step, the credit or debit card will be in your mobile phone — like Aladdin's lamp, in a way and reaching smaller merchants in the real world, going beyond online purchases. Here's how.

Imagine you walking into a local grocery shop and instead of swiping a card you tilt or tap your mobile phone. The shop's machine will recognize your virtual card and ask you for a PIN number, just like an ATM. This is possible thanks to an emerging technology called near field communication (NFC). NFC is radio technology a lot like Bluetooth or wi-fi but helps in safe contactless transactions.

SBI Cards has already tied up with several metro rail stations to launch a pilot project that involves credit cards fitted inside mobile phones. "You could tap and pay," Mohapatra said.

Such baby steps are part of a global revolution, whose impact will be felt more in farflung areas where banks are not to be seen.

MasterCard says mobile phones are the key to financial inclusion for more than 2 billion underserved people in the world in corners of Africa and Asia. It has something called the MasterCard Worldwide Network to spread the reach of mobile payments. Of course, this would be enabled not by conventional banking channels but by other partnerships leveraging on its financial and brand strengths but in a way that connects those without the usual bank accounts.

Consulting firm Capgemini and the Royal Bank of Scotland said in their annual World Payments Report last year that partnerships such as MasterCard's deal with telecom operator Telefonica for Latin America and Visa's South African acquisition, Fundamo are part of such initiatives. Two years ago, MasterCard partnered with companies like Comviva, Sybase 365 and Utiba to help pay easily at small shops and establishments.

Net 1 Universal Electronic Payment System Technologies (Net1), a company listed in the US and South Africa, has firmed up plans to launch its services in India by linking up with Visa.

Net1 is even keen on biometric verification — such as the use of a fingerprint or eventually, the face. It has already been using biometric verification, which can make the PIN number out of vogue — in South Africa.

Central banks do have regulatory challenges to ensure that the ease brought in by virtual credit cards does not create undue risks.

"We need to understand the consumer mindset and demand," said a senior RBI official. "We are actively working in this direction to see how virtual credit and debit cards can be brought to use. Besides, if your credit card is imprinted on your mobile phone, it could also provide the flexibility to consumers in smaller towns to make use of small and micro credit."

A senior executive at ICICI Bank, one of the largest card issuers in the country said it is early days yet for virtual credit cards in India. "However, within a few years, we would see this is the norm. We are all working towards the e-space."

Whatever the pace, the direction is clear. The plastic as we know it is now elastic.


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