Article

Regional ATM focus: Canada

Canada's move to EMV and the fight for ATM fees are 2007's top priorities.

September 4, 2007 by Travis Kircher — N/A, N/A

Travis Kircher is a new contributor to ATM Marketplace. To submit a comment about this article, please e-mail theeditor.

The migration to EMV (the Europay, MasterCard, Visa standard) and the battle to keep ATM fees have weighed heavy on the minds of ATM players in Canada this year.

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In 2005, according to the Interac Association, Canada's EFT network, Interac member FIs reimbursed Canadian cardholders for $70 million (U.S. $66.3 million) worth of debit-card fraud. Last year, that reimbursement for fraud hit $94.6 million (U.S. $89.6 million).

"We're seeing continued growth, unfortunately, in our levels of debit-card fraud," said Kirkland Morris, assistant vice president at Interac. "That really speaks to the motivation for us to look to EMV as a new technology solution."

And the FIs are eating the fraud costs, says Vern McLean of ATM processor Calypso Canada, a division of Long Beach, Miss.-basedTriton Systems.

"Today, in a fraud situation, where there's a skimming issue associated with any ATM or point-of-sale device, the bank is actually eating that fraud," McLean said. "It's not the merchant. It's not the cardholder."

EMV

EMV is widely regarded as being more secure than the mag-stripe for authenticating debit and credit transactions. EMV's adoption in the United Kingdom and other parts of Europe has been credited with driving down card and ATM-related fraud.

According to England's APACS, total card fraud losses in the U.K. fell 3 percent in two years, from £503 million to £423 million (U.S. $853 million). Industry analysts generally credit the move to EMV for the drop.

To that EMV end, Interac has mandated a number of deadlines for its member organizations to adopt the EMV standard. The final deadline for EMV compliance in the country is Dec. 31, 2012.

"I think (the migration) is going very well," said Nicholas Hames, vice president ofNCR Corp.'s financial solutions division in Canada. "I think there's a lot of activity, but there's also a lot of project discipline."

Hames says MasterCard World, Visa Inc. and Interac have set and met milestones, including those set for the move to encrypting PIN pads and Triple DES compliance in Canada. Meeting the EMV-standard deadline also is expected to go smoothly.

In October, EMV chip cards are expected to be introduced in Kitchener-Waterloo, Ontario, on a trial basis. A medium-sized city two hours from Toronto, Kitchener-Waterloo boasts a population of roughly 200,000 people.

"It will begin gingerly," Morris said. "This is a learning experience. So in the fall, we're going to see very small numbers of cards in issue, just to make sure that there aren't any bugs in the technology and that everything works as it's supposed to."

Hames says Canada learned a lot from the U.K.'s migration.

"It's been good for us as the Canadian arm of the global company," he said. "We were able to leverage our U.K. experience."

Hames says NCR is anticipating the results of the experiment.

Morris says the United States could learn from Canada's EMV experience. In spite of the States' refusal to adopt EMV technology, Morris says it's only a matter of time.

"We really see ourselves as joining an international EMV migration that is really gaining momentum," he said. "I think we do view that at some point, the U.S. will join the EMV bandwagon, so to speak. And I think that we are eager to see that. As a market that is committed and is moving, obviously we have an interest in seeing other markets do the same."

A 'carrot and stick'?

As well as the process has gone, the industry says there remains room for improvement. For one, some argue that Interac should reward FIs, IADs and merchants for their willingness to fork over the cash to meet EMV deadlines and upgrade equipment and software.

Calypso's McLean says an independent deployer with a network of 200 ATMs can expect to pay more than $360,000 to meet all of the requirements set forth by Interac for the shift to EMV.

"What we need to do as an industry is communicate these costs of compliance back to the Interac Association - that they're significant to the industry as a whole, a burden that was certainly not anticipated four or five years ago," said Doug Epp, Calypso's general manager. "The Interac Association has to stand up and recognize that there are increased costs in the Interac shared network in the Canadian marketplace."

To help cover the costs of rewarding IADs, FIs and merchants, Epp says Interac should increase its interchange fee by 10 cents. The current fee is 75 cents, Epp says.

McLean adds that Interac also must find a way to motivate small- to medium-sized merchants to make the equipment investment.

"You've got a situation where the ATM owner, for example, is not eating any fraud and he's being asked to increase his compliance for $1,000 or $1,500 a unit and he doesn't see the benefit of it," McLean said. "He's got no costs associated with it. All he's seeing is the upgrade costs."

Epp's answer? A firmer hand and a "carrot-stick" approach.

"One of the common comments by the ATM industry participants in Canada is the desire to see a stronger policing role by the Interac Association in the Canadian marketplace to ensure that there is a level playing field out in the market," he said.

Morris would not say whether Interac is expected to succumb to those types of fee requests, but he did say that the association is "constantly evaluating" all competitive pricing techniques.

"I can tell you that we have not made any decisions to alter our current product pricing at this point," he said. "We've taken an approach that says that all market participants share today in the problems associated with debit-card fraud. It's not a problem that just impacts a card issuer or an acquirer or a merchant. This is a shared problem and so EMV represents a shared industry solution. It's absolutely true that all of the participants in that payment chain probably have work to do and probably have investments to make to facilitate migration to EMV, but I think it's equally true that all of the participants in that payment chain will benefit from what EMV has to offer."

The fee debate

As the move to EMV begins to weigh on deployers' pocketbooks, legislators earlier this year spawned a debate that pointed the spotlight squarely on so-called "convenience fees" charged at FI-owned and white-label ATMs. The fees, ranging from $1.25 to $1.50 per transaction, have become widely unpopular among some Canadian consumers.

And the controversy over convenience fees could fuel a push-back from legislators and the public, especially where an increased interchange fee is concerned.

"I doubt very much that this is the final conversation we will ever have with federal regulators and politicians about fees," Morris said. "Every couple of years, issues like that surface."

But Rick DuVall, a senior project manager at ACI Worldwide, says public agitation among Canadians is misplaced.

"We call them convenience fees for a reason," DuVall said. "It allows banks to place ATMs in locations where they would not be able to place an ATM normally with a normal interchange structure. When you're out and about at 10 at night and you're at a restaurant or a bar or whatever, you know that the ATM that's sitting 20 feet from you is going to charge you $1.50. But your alternative is getting back in your car and finding one of your branches."

DuVall said the decision to pay the fee is a matter of convenience and entirely up to the consumer.

The future?

"From the Canadian perspective, we expect to follow the U.S. example of moving to deposit automation through check imaging," Hames said.

And Morris says the market's maturity offers opportunity and challenge.

"It's an industry that is sparkling with opportunities as one looks forward, but an industry that, given its state of maturity and given some of the issues in play, also has its challenges," Morris said. "We're going to have to work with industry participants through those challenges to capitalize on some of the opportunities that are out there."

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