Payment industry prepares for chip card trial

Canadian merchants may face a significant upgrade to their point of sale systems following an industry trial of next-generation debit and credit cards that incorporate a microchip as well as a mag stripe.

Interac Association, MasterCard Canada Inc., Visa Canada Association, and financial institutions such as TD Bank are planning the trial in September. A number of merchants throughout the Kitchener-Waterloo area have been set up with terminals that will accept the chip-based credit and debit cards. TD on Monday announced what it called the first successful transaction with a chip card at a Green Machine ATM at its corporate office in Mississauga, Ont.

Chip cards have an embedded computer chip 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 EMV standard, which was created in 1996 and is used around the globe, is broken down into two levels. The first covers 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.

Jeff van Duynhoven, vice-president of TD Merchant Services, said HP has been working on software upgrades to its Green Machines so they will work with the chips.

“This was more of an operational test, which is all part of leading up to the industry trial in Kitchener-Waterloo that starts this fall,” he said, adding that the software involved was a mix of purchased and internally-developed product. “There’s probably some degree of customization involved, but it’s all being done to EMV standards.”

Even once the ATMs are capable of chip-based transactions, users will still be able to fall back on the mag stripe, van Duynhoven said. TD Bank and others have been slowly starting to deploy chip-capable terminals. For some retailers that simply use a debit or credit card terminals that aren’t integrated with their cash registers, the transition will merely mean swapping one system for another, he said.

“The more complex stuff is on the integrated side,” said van Duynhoven, adding that messaging between the chip and retailer’s equipment could be an issue. “Some very big merchants would have custom software, so there could be changes at the front end and back end. There’s a certain dialogue that needs to happen with the terminals.”

TD Bank recently formed a partnership with Tender Retail to offer its Merchant Connect EMV POS software to interested retailers.

Toronto-based Interac Association, which runs the national network for debit transactions, has already done some of its own software upgrades to in order to process chip transaction, according to spokeswoman Tina Romano. Interac will be ensuring there are no challenges with ATMs and point of sale systems communicating during the industry trial.

“If there are any interoperability issues – if one of the direct connectors is experiencing a problem – we’ll deal with those,” she said.

Van Duynhoven said the biggest part of the transition may be the user interface, particularly because chip-based cards could mean credit card users are asked for a PIN number.

“If you’re in a restaurant and you pay at a table, that changes the entire experience,” he said. “Restaurants will end up moving to a wireless or Bluetooth type of thing – we need to figure out how that will happen. Same thing if you’re used to having your credit card swiped when you check into a hotel or run a tab at a bar.”

Most payment industry players expect chip-based cards to be introduced in volume later this year, with full deployment by 2008.

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