Smart cards poised to become a big deal

CREDIT CARDS WITH PINS AND EMBEDDED CHIPS ARE SLATED FOR WIDESPREAD ADOPTION BY 2010, and industry watchers are advising merchants to look at how the new payment method can benefit them in fraud reduction and value-added services, rather than worrying about the initial implementation costs.

“This is a little like the early 1980s with PCs,” said Catherine Johnston, president and CEO at Advanced Card Technologies (ACT) Canada. “We’re beginning to understand the capabilities and the things we will be able to do with chip cards and I think merchants will need to look at the positive gains.”

Members of the payment card industry, including Interac Association, MasterCard Canada Inc. and Visa Canada, are in the midst of a chip and PIN trial in Ontario’s Kitchener-Waterloo area. According to Kim Madore, VP of sales for the Canadian operations of smart-card chipmaker INSIDE Contactless, the trial has been promising and mass migration to the new payment technology should get underway this fall.

“For merchants, it will be fraud reduction that gives them the business model to move forward with this,” he said. “Plus, Canada has had PIN since 1992 when Interac was introduced, so consumers will be very accustomed to the technology and recognize the security benefits.”

But while the hype around fraud reduction might be enough to get consumers onside, some merchants might have a difficult time making a business case on that fact alone. Lise Dellazizzo, senior VP of technology research at Harris/Decima, said that a significant problem for some merchants is the expensive hardware and software costs involved in the migration. While businesses in the food services industry – which often rent their payment machines – may get off relatively easy, she said, it will be a far different story for merchants in other fields.

Johnson’s advice to merchants was to accept the fact that the payment industry is constantly evolving and take advantage of the advancements the technology can offer. “For instance, if you look at a smaller merchant, they really don’t have a strong business case for issuing their own loyalty program cards,” she said. “But because chips can have multiple applications on the same card, merchants can band together and each put their own applications on consumer credit cards.”

Visa Canada has already said Canadian businesses will need to get onboard with the new technology by October 2010 or the liability for payment fraud claims falls to the merchant themselves.

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