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Presentations
CANADIAN PAYMENTS ASSOCIATION a presentation to the
EMERGING PAYMENTS
TECHNOLOGY GROUP
This was the second of two presentations
to this workgroup.
A look at the factors
driving smart cards
into the Canadian Market.
June, 2001
By Catherine Johnston,
President & CEO,
The Advanced Card
Technology Association
of Canada
Thank you for inviting
me to meet with you
today, particularly
since I could not
make
the last meeting.
I bring you greetings
from the Stakeholder
Advisory Council.
It was at our last
council
meeting, when we
reviewed the CPA
work plan
for the year, that
we felt it would
be timely
to give you an update
on chip, or smart
card
activity.
What a difference
a year makes. Last
June
27th, I met with
you and I'd like
to look
back at some of the
things we discussed.
Before I start, let
me tell you that
I've
reserved at least
half of my time for
an
open discussion on
this subject and
I'll
be happy to answer
any questions you
may
have.
So, last year we
talked about when
cards
would take-off and
I said that they
are only
a platform, and like
the PC model, it
is
the applications
they support that
will gain
popularity. Since
then we've seen 100,000
smart cards issued
by Toyota in Quebec,
100,000
affinity cards by
Telus and Early Rain
in
Edmonton, and 125,000
have started to rollout
in Montreal for e-cash,
loyalty, e-gift and
couponing. Northern
Reflections now has
a
loyalty card, and
parking meters in
Vancouver
and Ottawa are equipped
for chip payment.
Today Canadians use
smart cards for transit,
telecommunications,
loyalty and other
retail
applications, data
security, physical
access,
stored value and
electronic cash,
time and
attendance, parking
payment, golf, and
health
care among other
uses. On a global
basis,
shipments of smart
cards were up 48%
last
year.
We talked about consumers
and said that once
they found a smart
card application
that
provided them new
convenience; they
would
start to think about
other applications
that
they would like to
add to the card.
This
is now happening
in Europe. People
with cell
phones, PDAs and
other wireless devices
are
finding that smart
cards are the most
convenient
way to carry and
manage common data
such
as schedules, phone
numbers and PINs.
This
accounts for part
of that 48% increase.
Again,
it is about convenience.
There are cables,
cradles and other
methods of doing
this,
but a single card
carried in a wallet
is
both familiar and
convenient.
We have always said
that it won't take
long
until consumers become
comfortable with
this
chip platform and
view it as a PC.
They will
then want to choose
and buy their own
cards
and their own applications.
As with their
PC's, they will expect
to load and maintain
those applications.
Much is said of the
need to build a national
infrastructure and
the debate has always
been whether it will
be a government or
financial
institution initiative.
Long before either
reaches that goal,
consumers will be
in a
position to buy their
own piece of the
infrastructure.
We know that Canadians
have a passionate
love affair with
convenience. 85%
of our
banking transactions
are done electronically
and last year we
used Interac debit
just
under 2 billion times,
so it is no wonder
than leading global
organizations are
moving
smart cards into
their product lines.
IBM, Compaq and HP
have PCs with smart
card
readers as standard
equipment.
Sun has developed
JavaCard for smart
cards.
Microsoft has developed
an operating system
called Windows for
Smart Cards and has
included
support for the cards
with Windows 2000
AMEX, MasterCard,
Visa and Europay
all have
active smart card
programs for their
members.
At September's conference
you will see, and
perhaps win, PDAs
with smart card readers
There are mouse pad
and keyboards with
smart
card devices and
this one that plugs
into
your PC port to support
a keyboard and smart
card. The price on
this device is under
$10,
making it a consumer
device.
A year ago we talked
about the need for
global
standards. Earlier
this week ACT Canada
hosted
an EMV Overview workshop
for delegates from
Canada and the United
States. Between the
countries that have
already committed
to
EMV and those headed
in that direction,
I
would say that it
is now the global
standard
and infrastructure
investment can proceed.
Last year we talked
about issuers facing
change, with new
partnerships and
distribution
channels opening
up. Just this week,
we see
Target, the 3rd largest
retailer in the US,
follow the path of
some UK retailers
in becoming
a bank and issuing
new cards to their
customer
base. Target Corporation
(NYSE: TGT) has
joined forces with
Visa U.S.A. to become
the first U.S. retailer
to enhance the shopping
experience for millions
of its guests through
the introduction
of Target smart Visa
cards.
This coincides with
Target's decision,
following
a successful three-market
test, to roll-out
the Target Visa card
on a national basis.
Target will take
a lead role in advancing
smart cards in the
U.S. both by issuing
smart
cards through its
Retailers National
Bank
affiliate later this
year and by installing
point of sale terminals
that accept chip
payment in all Target
Stores in 2002. We've
already seen a form
of that here, although
to date Canadian
banks have been the
provider
of services for President's
Choice and BIZSmart,
but other Canadian
retailers are becoming
restless.
ACT Canada has been
approached by a number
of large multi-nationals
that have experience
with smart card based
payment applications
in other countries.
With that experience,
they know the merchant
benefits and are
anxious
to move forward in
Canada. These retailers
are frustrated by
their inability to
discuss
this with their financial
institutions. Canada
may be the first
country moving to
chip where
the retailers are
ahead of the curve.
A re-emerging issue
is privacy. Recently
we have heard a great
deal about privacy
and I'd like to set
the record straight.
Smart cards are a
privacy enabling
technology.
That is a view commonly
held by privacy professionals
and the reason that
the Information and
Privacy
Commissioner's Office
of Ontario and ACT
Canada have developed
two Privacy Impact
Assessment Procedures
related to single
and
multi-application
cards. Let's look
at what
is at risk today.
Think for a minute
about what you have
in
your wallet right
now. If I were to
take
your wallet, I would
likely know your
name,
address, height,
whether your wear
corrective
lenses and the numbers
you use to legally
drive, work and obtain
government funded
health care and your
place of birth. I
would
probably have your
Vehicle identification
number, plate number
and a description
of
your car. Above and
beyond that, I would
now likely have a
picture of you and
a copy
of your signature,
in other words, almost
everything I need
to steal your identity
- and ladies and
gentlemen, theft
of identity
is one of the fastest
growing frauds of
the
past decade.
The existing technology
that carries that
personal data is
incapable of protecting
you because everything
sits on the face
of
the cards. On smart
cards you can move
that
information to a
protected place.
Privacy and security
are two of the reasons
smart cards are in
use around the world.
In fact, smart cards
are an inevitable
e-commerce
enabler. In the internet
world of commerce;
identification, authorization
and non-repudiation
all will be enabled
by smart card applications
and when internet
purchases account
for only
1% to 2% of credit
card volume, but
50% of
the fraud, the race
is on. Chip, or smart
cards can carry digital
certificates, biometrics
and the payment mechanism
itself. EMV standards
support this.
Banks can have a
rich future as the
notary
publics of the Internet
as these platforms
bridge the clicks,
the bricks and the
devices.
There are 300 million
Internet users today
with an estimated
billion by 2005.
In business
to business alone,
e-commerce will be
up
to 1.3 trillion USD
by 2003 according
to
Forrester Research.
Consumers, however,
still
site security as
their reason for
not purchasing
online. They may
window shop, but
payment
is still a concern.
Meridien estimated
that online credit
card
fraud cost Internet
merchants up to $400
million in 1999 and
they say…
"Despite the
much talked-about
dotcom
explosion, online
fraud remains a key
factor
in holding back the
success of buying
and
selling via the internet.
Not only are consumers
concerned about their
credit and debit
card
numbers being used
by hackers to run
up bills,
but merchants themselves
are worried about
the potential impact
of fraudulent purchases
on their businesses
because it is they
who
pick up the bill
when a card number
is misused".
According to the
Which Online Internet
Survey,
51% of internet users
are worried about
fraud
and 42% believe it
is unsafe to use
credit
cards online.
On a positive note,
smart card capacities
and costs follow
the computer model
with
costs falling and
capacities increasing.
For example, there
is now a $3.00 card
with
enough built in security
to be capable of
carrying electronic
cash.
In closing, I would
like to answer the
question
posed at the CPA
conference last month;
is
there a berth for
smart cards.
Today I have 37 pieces
of paper and plastic
in my wallet to help
me bank, shop, travel
and generally identify
myself. It has taken
forty years to collect
these and not once
during that time
has an issuer said:
"Catherine,
we have an exciting
new mag stripe card
for
you. Issuers told
me about the convenience
of credit, the magic
of debit, the rewards
of loyalty programs.
It is all about the
application, but
in North
America we persist
in focusing on the
technology.
Had we done that
with ATM's we would
likely
still be lining up
on Fridays at the
teller's
wicket. As Lloyd
Darlington said in
his keynote
address at the CPA
conference Canadians
are
proven to be early
adopters, not I believe
because of a love
of technology, but
because
we know what it is
to have a superb
payments
system and we have
become accustomed
to convenience.
And as he said, in
a world where we
conduct
business globally,
we will face global
competition.
Canadian financial
institutions and
the payment
system in general
cannot take ten years
to
introduce new technologies
because the consumer
won't wait if outsiders
make it available
sooner. Today I receive
at least 30 offers
of credit cards from
US issuers for every
one from a Canadian
and they are already
planning for smart
cards here in Canada.
We all know about
the requirements
for infrastructure.
It is a large and
expensive venture,
as was
building an ATM network
and introducing online
debit.
So what we else do
we really know. Today
there are smart cards
in use across Canada
in almost every sector.
There are hundreds
of thousands of smart
capable or already
enabled POS devices.
There is a consumer
appetite for privacy,
convenience and security.
As applications such
as e-commerce and
technologies
such as wireless
provide the convenience
consumers seek, smart
cards will provide
the privacy protection
and security for
tomorrow's
applications. The
time has come to
focus
on those applications
and realize that
smart
cards are simply
the enabling platform.
Large retailers are
pushing for the technology,
many Canadians are
already using it
for payments,
and behind these
doors you know how
soon
financial institutions
will move to smart
credit, debit and
other products. The
question
I leave you with
is what role will
this group
and the CPA play?
§ (Research: The
Credit Card Research
Group
reports that while
the internet is responsible
for just 2% of all
credit card and debit
card transactions,
it generates 50%
of all
credit and debit
card complaints.)
Catherine Johnston
President & CEO
ACT Canada
905 426-6360
ACT Canada is an international non-profit
association for the advancement of card technologies.
We work on behalf of our members to promote
the awareness, understanding and use of all
advanced card technologies; including optical,
smart, capacitive and emerging technologies.
If you would like to learn more about ACT
Canada membership please visit the membership section of our web site or contact our office at
(905) 426-6360.
Please forward any comments, suggestions,
or questions to info(AT)actcda.com
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