The payment industry is readying itself for the rollout of chip card technology, with the first transactions to likely take place in less than two years’ time.
Consumers can expect to see chip-based debit and credit cards in the market by 2007, according to spokespeople from Interac Association, MasterCard Canada Inc. and Visa Canada Association. Visa currently offers a couple of chip cards in Canada including the RBC Avion Visa card and expects that 85 per cent of transactions to be between chip-based cards and terminals by 2010. Desjardins Group also plans to be the first financial institution in Canada to take advantage of the technology by rolling it out across its organization by 2008.
American Express does not have firm release dates for such a product but a spokesperson confirmed that it is considering it and will gauge market reaction when more products from other payment providers are introduced.
“This is about providing for the long-term security of payment cards services in Canada,” said Kirland Morris, director of strategic policy and integration at Interac. “At the same time, what chip offers is a technology platform that is much more flexible than what we have today under magstripe.”
Chip cards have an embedded computer chip in them and offer enhanced security and additional features over traditional magnetic stripe cards such as loyalty programs. In terms of security, the chip stores public keys with RSA technology and they also do Triple DES Encryption. Future applications of the technology could also include one card for credit and debit transactions. France was one of the first countries in the world to deploy proprietary chip card technology in the late ‘80s and is now working towards an open standards model known as Europay MasterCard Visa (EMV).
The Canadian subsidiaries of Interac, MasterCard and Visa announced on Monday their ongoing commitment to the EMV standard, which was created in 1996 and is used around the globe. EMV is broken down into two levels with the first covering how the terminal operates and the second dealing with the software. The chips themselves are manufactured by a number of companies including Siemens spin-off Infinium, Hitachi and Philips. There are several operating systems that run on the chip including Multos and Java Card, both of which are open-based systems, as well as proprietary systems. Interac, MasterCard and Visa are working together to promote open standards-based systems like Multos and Java Card so that if the chip manufacturer changes, no re-programming is required.
“(EMV) was designed to facilitate electronic payments using chip card technology,” said Allen Wright, director of chip initiatives at Visa Canada Association. “The standard also ensures that the systems remain interoperable. A merchant can have one sales device and transact for Visa, MasterCard or American Express.”
While many countries have adopted the EMV standard, including France, the U.K., Malaysia as well as many other Asian and European countries, the U.S. currently has no plan to adopt chips. To mediate this situation, credit and debit card companies plan on keeping magstripe technology in the meantime so that Canadians traveling to the U.S. will be able to have their transactions processed.
To get ready for the technology, merchants will need to have systems with a chip reader embedded. MasterCard, for example, is planning a three-year rollout period to help alleviate the pain of a system upgrade for its customers.
“Migration is intended to be over a period of time,” said William Giles, vice-president of emerging technologies at MasterCard Canada. “People can replace their terminals on as much of a natural replacement cycle as possible.”
Payment industry players like Interac, Visa and MasterCard have already started working with merchants through associations like the Retail Council of Canada.
“The response is positive,” said Interac’s Morris. “People are keen to have a long-term security solution and the other opportunities it provides.”
In addition to setting its initial target date for chip card deployment, Interac has also established that by year-end 2012 it will only be processing chip transactions at banking machines and by the same time three years later it will do the same at the merchant’s site.