Wednesday, March 26, 2008

Canadian credit card market relatively unscathed

The Canadian credit card market is starting to show some signs of strain, but it would take severe cracks before banks backed off from this lucrative but little-understood business.
Rising credit card delinquency rates in the United States have reportedly prompted banks to tighten up their lending standards, making it hard for some consumers with maxed cards to borrow more.

Losses and delinquencies have also been ticking upward in Canada, according to credit rating agency Moody's Investors Service Inc. It has an index that tracks about $59.9-billion, or more than 80 per cent, of the Visa and MasterCard credit card receivables outstanding in Canada. It found that the charge-off rate - a measure of credit losses - climbed to 2.8 per cent in the third quarter of 2007 from 2.49 per cent a year earlier. The 90-plus day delinquency rate rose to 0.73 per cent, from 0.63 per cent a year earlier. Moody's is still waiting for fourth-quarter data, but it's safe to say the market here is not eliciting the same level of concern as in the United States, where the agency has a negative outlook for the weakening credit card sector. Canadian bankruptcies increased marginally in the fourth quarter, but employment levels were very strong, said Moody's vice-president Sumant Inamdar. "We have no concerns about any of the Canadian credit card transactions that we rate," echoed DBRS Ltd. senior vice-president Jerry Marriott. In fact, it's clear banks here are salivating over this business and there's plenty of room for growth.
"Every bank suggests that the competition is more intense now than it has been in some time, and there's some evidence of that simply because you see all the loyalty programs offering more and becoming a little more creative," said Genuity Capital Markets analyst Mario Mendonca.
One big new growth area is prepaid cards. "The marketing guys haven't even really turned their brain to how they can use MasterCard and Visa in that world," said one industry veteran.
An example is Bank of Montreal's recent experiment with a prepaid travel Mosaik MasterCard, a type of hybrid between a credit card and a traveller's cheque.
Part of the reason for the lack of concern in the Canadian market is the relative strength of the economy. There are also major differences between the businesses on either side of the border. The average Canadian adult has half as many credit cards as the average American, but uses each more often. Canadians held 61.1 million credit cards at the end of 2006, up from 50.4 million in 2003. The annual amount spent on them rose to $214.70-billion from $150.49-billion during that period. Importantly, it's estimated that roughly two-thirds of Canadian cardholders pay off their balances regularly, making cards more a payment tool than a method of borrowing.
That means less money to be made from interest payments, but banks also make large profits from fees that are paid by retailers when consumers pay with credit cards.
Banks that issue cards recoup about one to 1.5 per cent of the value of each dollar spent on the card through these fees. And there's more money to be made on foreign exchange when consumers shop abroad. Add it all up, and there's still plenty of room for growth in the Canadian credit card market, where the number of cards has been increasing in recent years as the number of cards in the United States dropped. "The big competition to card payments is cash, and cash is still king," said the industry veteran.

RBC looks to market prepaid benefits cards

Bank teams up with Edmonton firm to get governments to replace cheques with debit cards


TARA PERKINS
FINANCIAL SERVICES REPORTER
March 26, 2008


Royal Bank of Canada wants to cash in on the growing appetite for prepaid cards by marketing electronic benefit cards to governments across Canada, a development that could take a bite out of the cheque-cashing businesses. RBC, the country's biggest bank, has been working with a young Edmonton-based company, Pay Linx Financial Corp., to develop a card that allows government benefit payments to be doled out on prepaid cards rather than cheques.
The cards have been tested in a pilot project with the Alberta government, which has been experimenting with offering social assistance payments on them. Recipients who choose to receive their payments on a prepaid card can use them at any store or bank machine that accepts debit cards.


The cards will likely be offered province-wide this spring, said Dorothy Schreiber, a spokesperson for Alberta's ministry of employment and immigration. "Some people would take their cheques to cheque-cashing places and be charged a high fee," she said. "With the card, they get all of their cheque." Prepaid cards are a relatively new stomping ground for Canadian banks, and both RBC and Pay Linx are putting their creative talents to use to develop new ways of using them, such as insurance payments, corporate bonus programs, and travel cards.
"People have started to put their toe in the water in this space," said Anne Koski, head of card innovations at RBC. The total potential market for prepaid cards in Canada exceeds $100-billion while a more realistic figure is $35-billion to $50-billion, she said. The U.S. market is already about $157-billion, she said. "It's a different business," she said. "Like all things Royal Bank, we like to take a look at things a long, hard way before we decide to move forward."
RBC first took notice of Pay Linx in early 2006, when the Alberta pilot project was getting under way, and last year the bank bought 25 per cent of the TSX Venture Exchange-listed company. Yesterday, the companies announced a deal for RBC to provide the benefit cards, which it is now pitching to governments. "We're in the process of talking to pretty much all of the governments across Canada about this new capability that we'll be able to offer," Ms. Koski said.
Bank of Montreal recently launched a prepaid travel Mosaik MasterCard, a type of hybrid between a credit card and a traveller's cheque. A spokeswoman for Toronto-Dominion Bank said yesterday that prepaid cards are "a market we are interested in, but nothing to report at the moment." So-called "closed-loop" prepaid cards, such as those that are issued by retailers to be used in their own stores, have already taken off exponentially, Ms. Koski said. "But one of the other trends that's been happening primarily in the U.S., but also in other parts of the world as well, is the growth of what are called open-loop prepaid cards," she said.
While the cards are often branded Visa or MasterCard, in Canada they can also be done with Interac, a national payment network for debit cards. "That was where we've decided to focus our attention first," Ms. Koski said. While Ms. Koski's already dreaming up a myriad of uses for prepaid cards, the bank is focusing on this government offering for the moment.
"We're hoping with this card program that consumers will end up getting more of the funds that the government's allocating as opposed to paying fees to a cheque-cashing outlet," she said.
One of this country's largest cheque-cashing businesses, National Money Mart Co., charges a 2.99-per-cent fee plus a $2.99 item fee for cheque cashing, according to its website. Money Mart is owned by Nasdaq-listed Dollar Financial Corp. of Berwyn, Penn., and has more than 400 outlets in Canada. It could not be reached for comment yesterday. There are other savings with the cards. According to Ms. Schreiber it's been estimated that the average cost of issuing a cheque (including the salaries and administrative work involved) is $25 to $60, while the average cost of the prepaid cards is $16.62. Ian McNeill, Pay Linx founder and chief executive officer, said the firm is also working with High River, Alta.-based Western Financial Group on corporate programs, and will be announcing a relationship with another bank shortly

Monday, March 24, 2008

Skimmers are gaining ground, so it's time for a change

CANADIANS have long been among the world's biggest users of debit and credit cards and that's directly attributable to their trust of magnetic stripe technology and its ability to store data and match cardholders up with their accounts. But card skimmers are gaining the upper hand. By attaching an illegal device to an ATM or an automated ticket counter, crooks are able to capture private debit card data, like PINs, from the mag stripe and make duplicate cards. Then they empty out the account or go on wild shopping sprees. Now debit and credit card issuers are about to fight back with the pending launch of chip cards. The new technology heralds a new era in payment security as the data on the chip can't be captured like the information on the mag stripe can be. Chip cards carry heavy encryption codes that can be enhanced over time to stay at least one step ahead of would-be thieves. Kirkland Morris, assistant vice-president of strategic policy and programs for Interac Association, said chip cards won't be an overnight solution . He said it will take several years to get enough cards and machines into the market before the industry can take a "serious bite" out of fraud. He said the industry is focused on taking away the most convenient places for fraudsters -- ATMs. "That's where most counterfeit cards are used today. If you take ATMs away from fraudsters, you really take away a lot of the payback to them in card skimming," he said. "Ultimately, our goal is to push the fraudsters out of Canada to somewhere where the mag stripe infrastructure is more prevalent." Morris said he was hesitant to proclaim that any system is impenetrable but he said chip cards provide a "huge" leap forward in terms of security. "It allows us to continue to evolve security within the new technology. Each time you get a new debit card, it can have more security features than the one it replaced. Because the chip plays an active role in conducting security checks and balances, you can add more security over time. There's a great deal of confidence that we can continue to stay ahead of fraudsters as we move forward," he said. Vivek Chandra, vice-president of chip integration at Scotiabank, said chip cards aren't completely fool-proof. If somebody "shoulder surfs" you at an ATM or retail card reader to get you PIN and then steals your wallet, they'll be able to use your card until you cancel it, he said.

Chip Ahoy IT'S only a matter of time until Canadians are carrying around tiny computers in their wallets. Here's a quick primer on chip card technology.

What is a chip card?
Also known as a "smart card," it's a credit or debit card containing an embedded computer chip. Just like your current debit card, all chip cards, including credit cards, will require a personal identification number (PIN) to be punched in before a transaction can be completed.
What are the benefits of chip cards?
Chip cards and terminals work in tandem to ensure a highly secure transaction by validating both the card and the card holder. The computer chip makes them more difficult to copy, thereby reducing counterfeit fraud.

Why is the industry moving to chip?
It's the latest innovation in the rapidly-changing debit and credit card environment and demonstrates the industry's efforts to further secure Canadian electronic payments. Chip technology is already tested, proven and in wide use in Britain and France. Will chip card transactions be any different than magnetic strip transactions? With a chip terminal, the chip card is inserted and left there for the length of the transaction, as opposed to the quick swipe required for mag stripe cards. The chip card holder simply follows the prompts to complete the transaction. Credit card holders will need to enter a PIN, just as they do now for debit cards.

Are they doing away with the magnetic stripe?
Not yet. Chip terminals will recognize both chip and magnetic stripe cards for the foreseeable future. While this won't be a big deal on this side of the border, it will enable Canadians to shop in the U.S., which has shown no signs of moving away from magnetic stripe technology.
Source: MasterCard Canada

It's a new way to pay

ATTENTION credit card and debit card holders -- swiping will soon be passé and it will be hip to dip.
A pilot project introducing chip cards to Canada's payment system -- technology that essentially embeds a tiny computer in the plastic in your wallet -- is underway in Kitchener-Waterloo and a national roll-out is scheduled to begin before the end of the year.
The 30-year-old magnetic stripe technology on the back of debit and credit cards has become too susceptible to so-called card skimmers, who can copy the data contained on the stripe -- sometimes from right under your nose -- and produce duplicate cards, creating a cottage industry that costs Canada's financial institutions nearly $100 million annually and untold headaches to victims.
The billion-dollar overhaul to how we pay for anything and everything both in physical stores and on the Internet is designed to phase out mag stripes with a system that is a quantum leap more secure.
Unlike mag stripe cards, which use a neural network to determine which transactions should be approved or declined and require a phone call to the retailer to stop one, chip cards manage the risk immediately by matching the personal identification number, or PIN, up with the card right at the till.
Chip cards use lengthy encryption keys that are unique to each card and issuers say the keys can be enlarged as time goes on to make them even more difficult to crack.
The customer experience at the till with chip cards, which are commonly known as smart cards, will be similar to what we already go through with mag stripe cards. The biggest change will be inputting a PIN when using your credit card. This will replace the need for a signature on the receipt. You'll also dip the card in the chip reader for the duration of the transaction, rather than quickly swiping it through.
Debit card purchases will continue to be PIN-based, just like today, but again you'll dip rather than swipe.
Some of the biggest names in Canada's banking and retail sectors are involved in the Kitchener-Waterloo pilot. From the card issuer side there's BMO Bank of Montreal, CIBC, Scotiabank, TD Canada Trust, RBC Royal Bank, Visa Canada, MasterCard Canada, CUETS Financial, American Express and National Bank of Canada.
Retailers include Hudson's Bay Co., Canadian Tire, Home Hardware, Apple Autoglass, Brick Brewing Co., Hakim Optical, Subway, Taco Bell, Wilfred Laurier University, Minute Muffler, Magicuts, KFC and M&M Meat Shops.
Michel Chalifoux, vice-president for cards and retail payment services at BMO, said the driving force behind the chip card migration is a desire to significantly improve the payment system in Canada.
"Today, it's all based on the mag stripe and that's been under attack by fraudsters for some time," he said. "Our customers' privacy and security when doing a transaction is very important. The last thing we want is people trading chickens for food and clothes."
Chalifoux said he believes smart card providers, retailers and consumers will spend the first little while getting used to dipping instead of swiping but once their comfort levels have increased sufficiently, a whole series of add-on applications, such as electronic purses and contactless payments, will be launched.
The purse concept will use the chip's ability to store money right on the card, making it slightly different than using your debit card (and also less of a fashion accessory). You could download money right out of your bank account on to your card to use for small transactions. Financial services historians will recognize this concept has its roots in Mondex and a pilot program of its own in Guelph, Ont. in the mid-'90s.
"Instead of having coins in your pocket, you could have coins on your chip card," Chalifoux said.
Contactless transactions will require consumers to place their cards in front of a reader for a second or so. There's no need to type in your PIN every time either. The service will be primarily offered by retailers whose customers typically make small transactions, say $20 or less. But just in case somebody steals your card and is preparing for a lifetime of free muffins at your expense, rest assured only a finite number of contactless purchases - probably five or six - can be made before they'll have to punch in your PIN.
VIVEK Chandra, vice-president of chip integration at Scotiabank, said contactless transactions have had a limited roll-out with mag stripe cards but he said he expects they will pick up considerably with the chip platform.
"Contactless transactions are great for coffee but not for groceries," he said.
Taking things one step further, he said it's also possible to have more than one application on your smart card - having your credit and debit card plus a loyalty program on a single piece of plastic, for example. Retailers will also be able to download their latest loyalty programs on to your card right at the till, too, Chandra said.
William Giles, vice-president of acceptance at MasterCard Canada, said its goal is to see chip cards handle 20 per cent of all transactions in Kitchener-Waterloo in March but he thinks it will hit 30 per cent based on the type of merchants that have signed on for the trial.
Giles said each card issuer has a slightly different timetable for sending chip cards out to customers. He said between 70 per cent and 90 per cent of the population will get them to start. In other cases, chip cards will arrive in your mail box before your old mag stripe card expires.
"This isn't a test and shut it down. This is a test that leads to the launch. Chip migration is well underway. It's got a lot of momentum and it's not something that's going away. Ninety-two countries around the world are migrating to it right now, it's not like we're first," he said.
Giles said the widespread adoption of chip cards has caused criminals to move much of their operations to the Internet to try to steal personal credit information from online transactions instead.
Chip technology is ready for them, too, he said. Consumers can buy a tiny hand-held device for about $7 that hooks up to their own computers and simulates an in-store experience.
"You put the chip card in the device, enter your PIN and the device matches the PIN to your card. It can establish the card was there, it's a legitimate card, the PIN was entered and the PIN was legitimate. It essentially turns a card-not-present transaction into a card-present transaction," he said.
Canadian Tire spokeswoman Sarah Rodgers said there was never any question about its participation in the pilot project.
"It's the next wave. The chip card technology is going to be part of an evolution we're going to see with debit and credit cards," she said.
Canadian Tire is in the unique position of being both a provider of chip cards through its Canadian Tire Bank division and a retailer accepting payment from chip cards.
Rodgers said with security and identity theft being top of mind issues for consumers these days, the chip cards are expected to be embraced enthusiastically.
"(The security) is encrypted in your card. And there's no paper trail. You don't have anybody that could take the second part of your receipt with your signature on it. This is where identity theft often occurs," she said.
"I think the consumer response will be very positive. It will create greater consumer confidence, you'll spend less time at the cashier and you don't need to sign a receipt."
Chandra said the move to chip cards might not be 100 per cent complete for several years but consumers shouldn't expect the revolution to happen overnight. He said it requires retailers and financial institutions to completely revamp their three-decade-old systems to ensure that they're bullet proof. He said there is no movement afoot to move to smart cards in the U.S., so in order for Canadians to cross-border shop with reckless abandon, cards from this side of the 49th parallel will carry both technologies for the foreseeable future.
"If you don't ensure a water-tight system, customers will lose faith on the two fundamental products they use on a daily basis, debit and credit. We'll continue to communicate with customers and move in an orderly fashion."
"The mag stripe may still be there 20 years from now. These are major structural changes, they tend to take a long time," he said.


Source: http://www.winnipegfreepress.com/subscriber/columnists/top3/story/4135407p-4727555c.html

Friday, March 21, 2008

McDonald's Canada to accept PayPass, chip cards

TORONTO — McDonald's Restaurants of Canada Ltd. will install MasterCard's PayPass readers and chip-card terminals in some of its 1,400 restaurants across Canada as early as 2008, the company announced.

The PayPass feature gives consumers the ability to make "contactless" payments with the swipe of a card, mobile phone or key fob. Additionally, chip cards allow customers to personally insert their card into a chip-enabled terminal and then enter a personal identification number (PIN) to complete the transaction.

National Bank of Canada to adopt PayPass credit cards

National Bank of Canada has integrated the contactless PayPass payment option into smart credit cards issued as part of a project conducted in Kitchener-Waterloo, Ontario and Saint-Jerome.
Via PayPass users can pay for low-value purchases under USD 50, by tapping their card on a PayPass reader. Thus, they are able to complete transactions up to the limit set by the merchant. The payment system does not require having clients sign a sales slip or inserting a credit card into a terminal.
The feature provides National Bank MasterCard cardholders with three payment options, in compliance with the technology offered by the merchant. Contactless PayPass payment turns into an alternative to cash for low-value purchases by tapping the credit card against a reader. Smart card technology will deal with the security of transactions when clients enter their personal identification number. Merchants who do not yet offer PayPass or smart transactions will swipe cards and their clients will have to sign the sales slip.
PayPass is expected to become a payment option for fast food restaurants, pharmacies, service stations, vending machines, convenience stores and movie theatres as well.

Banks competing for high-net worth credit card business

Three new card offerings hit the market

Monday, March 17, 2008
By Regan Ray



Three of Canada’s big five banks are targeting high-net worth clients with new Infinite Visa credit cards. After two of its rivals announced high-end credit card offerings last week, TD Bank wasn’t going to be left out in the cold. The bank announced the release of its TD First Class Travel Visa Infinite card today. The TD card allows users to book trips any way they want, without having to deal solely with travel rewards programs. Users can book online or with any travel agent, making it easier “for cardholders to get the trip they really want," said the bank.TD says the card includes trip cancellation and interruption insurance, concierge assistance, VIP treatment at the world's finest hotels and resorts and access to reviews exclusive restaurants.CIBC was first to launch an Infinite card, with its CIBC Aerogold Visa Infinite card release last week. The CIBC version offers travel medical insurance and trip interruption insurance among other benefits. The annual fee is the same as that of its Aerogold card. The new CIBC Aerogold Visa Infinite card comes on the heels of changes CIBC made last year to its cards, including extra fraud prevention and allowing cardholders to earn 1.5 miles earned for every dollar spent.Royal Bank stepped up with its own Infinite announcement two days after CIBC’s. RBC called its “the most prestigious Visa card in Canada.” The bank said the card offers personalized servicing, customized rewards, travel assistance, concierge service, worldwide airport lounge access, premium insurances, and access to ultra exclusive events and experiences. RBC said the card is designed specifically for high net worth individuals and is available by invitation only.

Endless Infinite Announcements

In-fi-nite (adj.): Having no boundaries. Used in a sentence: "The number of press releases from Canada's big banks claiming firsts in relation to their new Visa credit card appeared to be infinite."After Canadian Imperial Bank of Commerce was first to announce its new Visa Infinite card last week — better rewards, less strict credit limit — rival Royal Bank of Canada quickly followed, saying its Infinite card is the first to market and offers "exclusive" rewards to high-end customers.
This in turn is being followed by the announcement of Toronto-Dominion Bank's Visa Infinite card, "the first card with the flexibility to book any time, anywhere, any way," according to a TD spokesperson.