Kicking the Tires on EMV

Being a pioneer is seldom easy. For Toronto-based Canadian Tire, there was both a challenge and an opportunity in being that nation’s first major retailer to roll out an EMV chip card payment system.

Although micro processor-based chip card payment systems are common throughout Europe and parts of Asia and Latin America, they have yet to gain a foothold in North America. But Interac Association, the payments network that oversees ATMs and debit card processing in Canada, announced that participating card issuers and merchant acquirers will need to be EMV-compliant by 2010; Visa Canada and MasterCard Canada have made similar announcements.

EMV is a chip-based standard for authenticating credit and debit payments. It defines the interaction between IC (integrated circuit) cards and IC card processing devices for financial transactions at the physical, electrical, data and application levels. The acronym stands for Europay, MasterCard and Visa, the three companies that originally cooperated to develop the standard; JCB and American Express subsequently joined the group.

With 475 stores selling automotive, sports and leisure products, Canadian Tire decided to get out in front of the mandate and make EMV compliance a major part of its effort to improve payment processing functions at POS.

“We saw an opportunity, and there were definite benefits from going with a chip card,” says Rick Bankes, vice president of IT for Canadian Tire Financial Services. “There is the matter of the security and the benefit of the chip itself in preventing fraud.”

The long-term benefits of fraud reduction played a crucial role in Canadian Tire’s decision. “Experience has shown that certain forms of fraud have been significantly reduced [by incorporating EMV] in other parts of the world,” says Bankes. And once compliance is mandated, “fraud liability shifts from the issuer to the merchant for those merchants that are not chip-enabled.”

As both a MasterCard issuer and acquirer for its stores, Bankes says Canadian Tire “has a vested interest in this program. With fraud escalating around the world, it was prudent to take action to protect our customers and cardholders.”

Canadian consumers, he says, “are very comfortable with PIN-based debit, so we thought it would be a fairly easy transition to PIN-based credit.”

The first order of business for Canadian Tire, Bankes says, was replacing POS terminals that could read only magnetic-stripe cards with units that could read both smart cards and mag-stripe cards. The company then had to train employees how to identify a card with a chip so they know to enter the card into the chip reader and ask customers to enter their PINs.

Helping the employees is a prompt from the terminal. If a card is chip-enabled but the employee treats it like a mag-stripe card, a message comes back to the employee to insert the card in the chip reader. Transaction times should not be materially impacted: While there is the additional step of entering a PIN, the customer does not have to sign for the transaction.

Canadian Tire also had to upgrade its switch “and get certified with all the networks, as well,” says Malik Velani, global product manager for Norcross. Ga.-based Postilion, the technology firm that advised Canadian Tire on the project. “This requires a decision to move toward a whole new type of data security.”

Smooth conversion
The retailer began with a pilot program in the Kitchener-Waterloo region of Ontario last fall. Although it is in the EMV vanguard for North America, Canadian Tire was able to benefit from the experience of other retailers. In particular, “the European experience translated well here,” Bankes says. “We were able to learn from the Europeans, and the conversion was a lot smoother than expected.”

Besides working directly with the retailer, Postilion dealt closely with payment networks, regional EFT groups and government entities to make sure Canadian Tire’s new system was secure and compliant, Velani says. The entire transition took nearly nine months to complete.

While other Canadian retailers are likely to follow Canadian Tire’s lead shortly, U.S. retailers are not expected to do so anytime soon. Unlike Canada, there are no payment-network mandates looming in the United States and, although chip cards have proven to be more secure than mag-stripe cards in other countries, U.S. retailers, banks and networks are focusing most of their efforts on other systems and technologies.

“There has to be a big push, and EMV is not on the drawing board for the U.S. just yet,” Velani says.