Chip technology: A win-lose proposition?

Bruce Cran has a chip on his shoulder. President of the Consumers' Association of Canada, Cran is boiling mad that the nation's industry-wide deployment of chip technology hasn't resulted in lower credit card bills for Canadians despite longer store line-ups and technical inconveniences.


"Consumers were led to believe that chip technology would produce a big savings," says Cran. That's because, according to Cran, banks have long argued that widespread fraud is the primary reason credit card interest rates are so high. Yet despite greatly reducing fraud via chip technology, banks still haven't slashed credit card interest rates. In fact, says Cran, "The net benefit of chip technology to consumers is nil."

Credit card and debit card companies in Canada began migrating to chip technology more than a year ago as part of a fraud-prevention strategy. Cards stolen from their cardholders or lost by them account for 23 percent of all card frauds in Canada. Often, cards are stolen from the workplace, gym and unattended vehicles, according to the Royal Canadian Mounted Police.

Chip technology promises to greatly reduce such fraud by requiring cardholders to enter a personal identification number, or PIN, instead of a signature, making it virtually impossible for card information to be copied by unauthorized users. Essentially, chip-enabled cards contain a microchip that's virtually impossible to duplicate. Chip cards work with chip terminals to help facilitate a secure transaction. In fact, cardholders don't even need to hand over their piece of plastic to a cashier. Instead, they simply insert their card into a terminal, enter their PIN when prompted, wait for their purchase to be approved, and then promptly remove their card from the terminal.

"Chip technology removes a lot of the fraud that we've faced in Canada over the last couple of decades," says Cran.

In fact, credit card companies AmEx, MasterCard and Visa had to swallow a combined $358 million in fraud losses in 2009, down from $407 million in 2008, according to the CBA.  

Unfortunately, such savings haven't been passed down to consumers, says Cran, noting that interest rate charges on credit card balances remain around 19 percent in Canada.

"Consumers have expectations of savings, particularly when they have to put up with longer line-ups," says Cran. "The rollout of this technology and the effect that it's having on point of sales has been very annoying to consumers. We've had longer line-ups and people have to remember more PINs."

After all, says Cran, as Canadian banks continue to rollout chip technology across the country, savings will continue to increase for the nation's financial institutions. And "if the banks' costs are reduced by hundreds of millions of dollars," says Cran, "it should be possible for them to pass some of those savings on to the poor old consumer."


Published August 17, 2010

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