“We really are poised at the front end of an evolution in retail as substantial as the introduction of the debit card, itself,” said Kirkland Morris, assistant vice-president, strategic policy and programs with Toronto-based Interac Association, speaking recently at the Retail Council of Canada's Retail Loss Prevention conference Sept. 19 in Toronto.

In 2005, swipe card fraud cost the industry more than $70 million and affected more than 72,000 card holders. “Those are fairly large numbers of fraud victims over the course of a year and have been large enough to garner a certain amount of public, media and government attention,” says Morris.

“On the one hand, it does arm consumers with a certain amount of awareness that can protect cardholders but, on the other hand, it also acts to undermine consumer confidence in debit cards. We are seeing consumers saying they are changing their activities when using their cards; common sense measures like shielding their pin and not using ATMs in secluded places at night and staying out of situations they don’t feel comfortable in or don’t like.”

About six in 10 people know what swipe card fraud is and have some understanding of the methods that swipe card fraudsters will use. But, says Morris, the public perception of where they may be at risk, including retail stores and gas stations, isn’t entirely correct. Criminals have also used false readers to steal card and personal identification numbers, hidden cameras and other methods. And those perceptions are hurting businesses.

That uncertainty is why the Interac Association and credit card companies have made the decision to go to chip technology, Morris says. Imbedded microprocessors in the cards hold information but, he says, also allow the card to be more active in the security process. The chip has more room for encryption routines that prevent the stealing of information from the card that can be useful to people intent on committing a fraud.

“We’ve made the decision at a much earlier point in the fraud cycle and taken more of a measured approach over the long term,” says Morris. “The key is to do a pre-emptive strike against fraud migration. We know fraudsters are well organized, they’re international and will move as other jurisdictions in Europe and Asia go to this technology. We stand here as a country with a solid reputation in the fraud community as a place with open borders and fairly light criminal penalities. And we have a highly mature pin payment market. Canadians are among the most active in the use of these transactions. We are seen as a fairly attractive market for fraudsters who have been displaced from other markets.”

He says England has begun to adopt chip cards after losing more than 500 million pounds to debit and credit fraud.

Morris says the technology is not viewed as a silver bullet that will solve all the problems of debit and credit fraud but it does put up more of a roadblock for criminals. After the introduction to the technology is done, it does have the ability to evolve and use increasing levels of encryption using existing technology.

After announcing the move to chip cards in March, the first trials for chip-based transactions are expected to take place in 2007. Deposit-taking automated teller machines (ATMs) are the primary target for retrofit, followed by regular ATMs and point of sale (POS) terminals. Ninety per cent of deposit-taking ATMs will be retrofit by 2010 with the remainder by 2012. Half of non-deposit ATMs will be converted by 2010 followed by the rest in 2012. One third of POS terminals will be converted by 2010, followed by nearly two-thirds in 2012 and the rest by 2015.

There are exceptions and credit card companies are planning their own schedules, but the technology is on its way, says Morris.

“Fundamentally, migration to the chip is, in part, about keeping pace with the global movement in fraud technology,” he says. “Canada enjoys one of the safest and most efficient debit and credit payment systems in the world. We have been technology leaders in this space and we all view the migration to chip technology as the most important to maintaining that leadership position and maintaining our global reputation as one of the most advanced and efficient systems in the world.”