If the payment industry’s ongoing chip and PIN trial in Ontario’s Kitchener-Waterloo area is any indication, the new card technology could be widely deployed in Canada before the end of 2010.
Members of the payment card industry – including Interac Association, MasterCard Canada Inc., Visa Canada, and virtually every major Canadian bank – announced Tuesday positive preliminary results for the industry-wide chip and PIN trial in Southern Ontario.
“The industry got together to talk about migration to chip because it was the single biggest upgrade to the payment system in over 30 years,” Tracey Black, program director at the Kitchener-Waterloo Industry Chip Trial, said. “In the trial, we have all the major banks issuing cards, all the major acquirers deploying terminals, the ABM networks that are operated by the major banks are all participating, and of course, the payment brands are involved.”
The new verification technology, which is being rolled out in Kitchener-Waterloo by banks like TD Canada Trust and Royal Bank of Canada, will equip all credit cards with a chip and PIN number. When a customer wishes to pay for goods they can place the card into a “PIN pad” terminal and verify payment by entering the PIN. This will replace the traditional need for signature verification and would also require customers to hang on to their cards at all times – as opposed to today’s practice in certain environments such as restaurants, where their cards are often swiped out of sight.
Since the start of the chip-card payment trial last year, over one-third of local residents have received cards. On the business side, local merchants have installed over 2,300 chip-enabled point-of-sale terminals and 65 per cent of automated banking machines (ABMs) have been migrated to the new technology
“We are comfortable enough that the infrastructure is working great and by the end of April, we expect there to be 250,000 cards in the Kitchener-Waterloo alone,” Black said. “The intention is at the completion of the trial in October that a national rollout will quickly commence and it’s expected that about 90 per cent of Canada’s cards and terminals should be converted by the end of 2010.”
Black said the cards and terminals have been going into the market as forecast and the trial should be deemed a success to this point. Integral to the technology’s adoption, she said, are the benefits both merchants and consumers will see in fraud reduction and reduced charge backs costs. But while many consumers might have little hesitation in making the upgrade, some merchants may not be so convinced.
“There is going to be a widespread rollout within the next two years and many consumers and merchants haven’t had the chance to work with the technology yet,” Lise Dellazizzo, senior vice-president of technology research at Harris/Decima, said. Harris/Decima is currently planning a study on merchant and consumer chip and PIN migration in Canada set to get underway next month.
A significant problem for some merchants, Dellazizzo said, is the expensive hardware and software costs involved in the migration. She said while businesses in the food services industry – which often rent their payment machines – may get off relatively easy, it will be a far different story for merchants in other fields.
“For the folks in the oil and gas sector, retrofitting the pumps will be a costly job,” Dellazizzo said. “It’s been very difficult for the card associations and the players to convince these merchants that there is an ROI in making the move. And when it costs you $15,000 to replace each pump and you’ve got thousands of them across the country, it can be a tough pill to swallow.”
But unfortunately for them, merchants may not have much of a choice. Some major card associations – such as Visa Canada – have said Canadians businesses will need to be onboard with the new technology by the end of 2010 or the liability for payment fraud claims falls to the merchants.
“From a liability shift perspective, if a chip-enabled card is used at a chip-enabled terminal, the issuer will still be responsible for the fraud,” Black said, “But if the chip-enabled card is used at a terminal that has not been upgraded for chip, then the fraud becomes the responsibility of that merchant. As long as the merchant upgrades to chip, they have no liability for any transactions that occur at a point-of-sale terminal with chip-enabled PIN cards.”
Black said the liability shift will further speed up the process for merchants to get onboard with the innovative payment technology. The trial is schedule to be completed this October.