When the chips are down

 “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.”