The strip is out and the chip is in.
At least in the payment card arena, as MasterCard Canada last month announced plans to introduce chip-enabled credit cards by 2010, following support from card issuers and acquirers.
MasterCard issuers will begin rolling out plans to phase out the magnetic stripe-based card systems and migrate to the more secure and application-rich chip-embedded cards, or smart cards, using EMV (Europay MasterCard Visa) standards, said William Giles, vice-president, distributed product management, MasterCard Canada in Toronto.
EMV is an international standard for chip-based payment cards aimed at ensuring the interoperability of different payment cards and payment terminals.
Chip-enabled cards work similarly to traditional magnetic stripe cards but with a much bigger capacity to store large amounts of encrypted information and applications like digital ID, e-ticketing, e-coupon, loyalty or rewards programs and personal data.
Smart cards also require the use of a personal identification number (PIN), providing enhanced security against identity theft.
“People are rolling out EMV for a number of different reasons, one of which is that it’s more secure for storing PINs than the existing infrastructure so it’s a natural next step,” said Giles.
“We believe it’s time to start migrating to the natural next step.” Twelve of MasterCard’s issuers in Canada, including BMO Bank of Montreal, Canadian Tire Bank, Credit Union Electronic Transaction Services (CUETS), MBNA Canada and President’s Choice Bank, have already expressed their intention to implement the chip-based technology for their payment cards, MasterCard said.
Giles stressed MasterCard’s 2010 target for introducing smart cards is not a mandate among card issuers and acquirers, but the card company has “strong confidence by that date, it will be difficult to find a card in the market that isn’t chip-enabled.”
“What our customers find most exciting about [chip-based technology] is the value-added applications that you can add on to the infrastructure once you have implemented the EMV,” he said. MasterCard issuer CUETS has began preliminary planning for the chip migration and expressed confidence it will be meeting the 2010 target year.
“MasterCard is allowing us as issuers to go at our own pace and what we want to have in the market is to have a critical mass by 2010 for Interac, Visa and MasterCard,” said Tom Kindred, executive vice-president and CIO, CUETS in Regina.
CUETS is also an acquirer, which provides MasterCard point of sale (POS) terminals and ATM networks. Kindred said CUETS plans to replace one-third of its card base per year, enabling the company to be fully chip-enabled by 2010.
On the infrastructure side, CUETS would be upgrading its payment authorization system to put in PIN verification and card authentication capabilities. “By and large, other than expanding datasets and file transfer protocols, it’s not a rip-and-replace [migration]. A lot of the [existing systems] will just be expanded,” said Kindred.
Beginning first quarter of this year, CUETS will be moving off the design stage and on to the detailed development phase, determining the new functionalities it will be building into the chip-based system, according to Kindred.
CUETS will be working closely with consultants from MasterCard’s Chip Centre of Excellence to help with the “internal strategy on how to approach it,” said the CIO.
MasterCard has made available the OneSmart platform, a suite of tools to help issuers, merchants and acquirers with the chip migration process, offering components like card applications, card readers, system software and business processes, said Giles.
“We are providing support for our issuers and acquirers to develop and migrate to chip-based [cards] based on what makes best sense for their business model.”
Giles said the move towards smart cards is gaining ground globally and Canada is “by no means early” in implementing this, as some of the countries leading in chip technology are France, the U.K., Malaysia and Taiwan. “So we look to them to learn best practices, but we are implementing on our own timeline and based on international standards.”
Getting chip expertise would be one challenge CUETS anticipates as the company migrates to smart cards, according to Kindred.
Although planning early helped CUETS secure the expertise early on, “it certainly doesn’t mean that we won’t need more,” he said.