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