Desjardins Group to pioneer smart chips on debit cards

Desjardins Group says it’s the first to announce a viable chip-on-debit-card deployment strategy, but every card issuer in Canada will eventually follow suit.

The Interac

Association has been agitating for the migration from magnetic stripes on cards to smart chips for some time and recently announced the infrastructure would be ready to allow for the transition by the end of 2006. The first financial institution in Canada to take advantage of that infrastructure will be Lévis, Que.-based Dejardins, with an initial target date of 2008, said vice-president of the personal banking division Eric Lemieux.

“We want to move forward,” he said. “We’re already changing our ATMs (so that they’ll be) able to read chip cards.”

Dejardins operates 2,800 ATMs in Quebec and 300 outside the province. Those, along with the institution’s 40,000 point-of-sale terminals, will have to upgraded to accommodate the chip technology.

“When you change something like that, it takes a while,” said Lemieux. The bank will also have to update its back office functionality to handle the data that is processed through the chips.

The benefit of chips over the more traditional mag stripe technology is added security, said Sara Feldman, vice-president of communications and marketing with the Toronto-based Interac Association.

“With the magnetic stripe, we know than criminals are constantly working and have found technology to duplicate the information,” she said.

The chips will also be able to handle a wider variety of information that mag stripes, which could make debit cards useful for more than just ATM transactions and POS payments.

Cards could eventually be used for micropayments. Rather than using a card to deduct money from a bank account, it could hold a fixed amount which could be used to buy a soda from a vending machine, for example.

“If we were walking around in our Captain Picard suits, you might have your credit card, debit, stored cash and loyalty (on one card),” said Feldman.

Lemieux said he expects these types of services to be added between 2010 and 2020.

It’s unlikely, however, that magnetic stripe will disappear altogether. The various banks and card issuing institutions across Canada are moving to smart chips at difference paces, meaning the older technology will be around for the foreseeable future. Also, numerous countries have no plan in place to adopt the chip cards, so the mag stripe cards will be available to allow Canadians to travel them.

Feldman said that the U.S. is one of the prominent countries with no plan to adopt chips. There are thousands of card-issuing institutions, she said, making it difficult to co-ordinate migration efforts. The cheque-book is still king in the U.S., she said, and American banks build customer incentives around chequing accounts.

Lemieux said that the Dejardins cards will have both mag stripes and chips to allow for customer flexibility. The banks new POS terminals and bank machines will also be able to process information from both technologies.

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