Canada Speeds up the Smart Card’s Lift-off in the North American Continent

By Sophie Lubet, CarteS

Canada is shaping up to becoming the second North American country, after Mexico, to adopt the EMV (Europay MasterCard Visa) standard for the mass deployment of smart cards in payment transactions.
“We estimate that 10 to 15 million EMV smart cards will be deployed next year,” says Philippe Tartavull, Chairman and CEO of Oberthur Card Systems for North America. This represents between 11% and 16% of debit cards (over 35 million) and credit cards (56.4 million) used in this country. They are mainly issued by three big organizations: Interac (35 million cards in 2004); Visa Canada, the Canadian association of debit card issuers (25 million cards in 2004), and MasterCard Canada (28 million cards in 2004). The migration process should take between three and five years. Visa estimates that 85% of its cards will be EMV cards in 2010. By that time, if all payment cards follow the same path as Visa, there should be nearly 100 million smart EMV cards in Canada.
“Fraud is unquestionably the main reason for this development,” says Nathalie Murat, in charge of Finance Marketing Services with Gemplus. But Canadian banks are also interested in the opportunities offered by the multi-application aspect (including loyalty) and the new functions provided by EMV, in particular on-line banking applications such as strong authentication. This is confirmed by Tom Johnston, Business Development Director with Axalto, who emphasizes that the number of Canadians owning an on-line account doubled between 2000 and 2003, and that 48% of people between 25 and 34 are now using this type of service.
With the use of cards (ten percent more than checks), Canadian banks have acquired a reputation for being highly dynamic in terms of innovation and the fight against fraud.
Canadians possess three credit cards per person on average, and in 2002, Canada had the highest number of transactions in the world per inhabitant (2.4 billion, representing 105 billion Canadian dollars for a population at that time of 32 million). The PIN (personal identification number) associated with the EMV will not be new to Canadians, who already use it under the name of NIP (Numéro d’Identification Personnel) with their magnetic stripe card, which sometimes involves a verification of personal information in the case of large transactions.
The EMV migration to Canada comes just at the time when its giant neighbor, with a population ten times the size, a similar number of payment cards per inhabitant (900 million cards for a population of 295 million) and a fraud rate three times higher, is preparing for the mass adoption of a contactless non-EMV payment solution. This raises several questions.
Will the United States, lying between Mexico and Canada, which have both opted for the smart card, now become a vulnerable zone on which the fraudsters will be able focus and thus redouble their efforts? Or, in contrast, will the two North American EMV countries, attracted to the “American” approach, adopt a contactless solution associated with EMV, as Europe seems to be doing?

Rapid expansion of other smart card applications
The adoption of the smart card in North America, a process to which Canada will be making a major contribution over the next two or three years, will not be limited to payment cards alone. The SIM card used in mobile telephony continues its breakthrough with various operators: Cingular (40 million cards per year) in the United States, Telcel (20 to 25 million cards per year) in Mexico, and Rogers Communications in Canada (3 to 5 million cards per year).
The smart card is also taking off in the identity markets. As from this year, permanent resident cards (Canadian Maple Leaf Card), federal employee cards, electronic passports and travel cards could represent a market of around 4 million smart cards and
documents in Canada.

Sources
Canadian Bank Association (end of 2005)
Nilson Report 2004
Euromonitor