Chip Card market test...Would this be RFID style chips?
'Chip and PIN' technology to be tested locally next fall
RON DERUYTER
KITCHENER (Nov 30, 2006)
Residents of Kitchener and Waterloo will be the first Canadian users of new smart card technology designed to reduce debit and credit card fraud.
Interac, MasterCard and Visa will start testing "chip and PIN" technology in Kitchener and Waterloo next fall, the organizations said yesterday.
Participating banks will send their customers debit and credit cards that are embedded with tiny computer chips that make them virtually impossible to duplicate. Meanwhile, a cross-section of retailers will install chip card terminals in their stores.
By the time the trial reaches its peak in March 2008, several hundred thousand smart cards will be in circulation.
About 20 per cent of sales transactions in the two cities will be completed using the new technology.
Kitchener and Waterloo were selected because they are representative of Canada from a demographic perspective; are close to Toronto, the home base of most of the firms involved in implementing the technology; and are geographically contained, which means cardholders mainly use their cards near where they live.
"It really is suited for this kind of market trial activity," said Kirkland Morris, assistant vice-president of strategic policy and programs at Interac, the association that oversees Canada's debit-card and bank machine networks.
Once the payment-card industry is satisfied everything works well, smart-card technology will be rolled out across the country.
"That is probably going to take a number of years to complete, so certainly Kitchener and Waterloo will be on the leading edge of the migration to chip technology," Morris said.
For consumers, the big change associated with the smart cards is the fact that you will do a lot less swiping.
When you buy something in a store that uses the new technology, you don't swipe your card, but insert it in a card reader. You also enter your personal identification number (PIN). That's also the case when you pay with a credit card, so the days of signing credit-card receipts are numbered.
The new cards will also have a magnetic stripe so they can be used in stores that don't use the new card readers. In fact, magnetic stripes likely will be around long after Dec. 31, 2015, the date Interac says it will no longer process magnetic-stripe transactions.
The switch to smart cards, in the works for several years, is driven mainly by the growing cost of fraud. Visa and MasterCard wrote off $168.6 million in fraudulent credit-card charges last year, while banks paid $70.4 million to reimburse customers for fraudulent debit-card transactions.
"The data on the computer chip is extraordinarily difficult to copy and change," Morris said.
The chip technology, already in use in Europe, Asia and Latin America, also makes it possible to introduce new products and services. For example, cards could be loaded with cash for small transactions. Or retailers could use the cards for loyalty programs.
"While our first objective is about reducing debit-card fraud and providing enhanced security, we are eager to begin to explore new kinds of opportunities that can be made possible by putting a little computer chip into the wallet of every debit-card holder in Canada," Morris said.
While retailers welcome initiatives to reduce fraud, they are concerned about the $1-billion cost of rolling out the technology across Canada.
Proponents of chip technology, including credit-card companies and firms that process electronic payments, haven't yet made the case that the benefits for retailers will exceed the cost, said Peter Woolford, vice-president of policy development and research at the Retail Council of Canada.
"Anything that can be done to reduce fraud and enhance consumers' confidence is a good thing," he said.