Canada Is Set to Start a National Rollout of Chip-Equipped Debit Cards

Canada's financial institutions will start issuing microchip-embedded debit cards by the end of the year, the country's national electronic funds transfer network said on Tuesday. The rollout of chip cards, which follows a year-long pilot of so-called chip-and-PIN technology in the Kitchener-Waterloo, Ontario, area, will over the course of four years convert the nation's 35 million PIN debit cards to chips from magnetic-stripe technology, according to deadlines set by Interac, the EFT network linking Canada's financial institutions. Caroline Hubberstey, director of public affairs for Interac, says the total investment in chip-and-PIN by member financial institutions, processors, and terminal makers will be “significant,” though she says “we don't have a dollar amount yet.” The payback is expected to come not just from reduced fraud internally, but also from the shield the technology can provide against fraud committed by international criminals looking for less-protected markets, Hubberstey says. “We certainly know fraud migrates to the weakest points, so we don't want to lag behind,” she notes. Fraud committed through so-called skimming?where fake cards and stolen PINs are used to illicitly withdraw funds at ATMs or POS terminals?is expected to grow worse in markets that have not converted to chip-and-PIN. The technology has already been adopted in the U.K. and much of Europe. “Canada was going to get the U.K. fraud because we're a natural destination for U.K. travelers,” said Philip Andreae, a payments consultant based in Canada and a former executive with Visa Canada and Europay International, for a story to appear in the upcoming November issue of Digital Transactions magazine. In 2007, Canadian banks reimbursed victims for $106 million in losses owing to skimming, Interac says. With chip-and-PIN technology, consumers insert their cards into a reader at the point of sale and leave them there for the entire transaction. The PIN they enter at the terminal must match the one encoded in the chip for the transaction to be authorized. In the Kitchener-Waterloo trial, consumers and merchants adapted readily to the process, Hubberstey says. Eighty-eight percent of the trial cardholders responding to a survey said the chip cards were as easy to use as mag-stripe cards, according to trial research released on Tuesday. Some 200,000 local residents had chip cards, while merchants in the area were equipped with 2,300 compliant terminals. The rollout will involve a much larger-scale replacement of cards and devices. Though all debit cards must be compliant by the end of 2012, the network has mandated that 65% be chip-ready fully two years earlier. The network's approximately 48 issuing member institutions (some of these represent multiple institutions) are distributing new cards on their own timetables in advance of the mandated deadlines. Interac links 603,000 POS terminals and 55,000 ATMs. Compared to the POS devices, the ATMs have a nearer-term deadline for compliance: Dec. 31, 2012. By the end of 2015, all of Canada's point-of-sale terminals must be chip-enabled, the network says. Banks will issue chip cards with mag stripes during the transition, but only as a temporary measure to allow the market to adjust. “After 2015, you won't see a mag-stripe transaction take place in Canada,” declares Hubberstey.