Interac Connects With Contactless Debit Payments

Canada's Interac Association debit network is teaming with France-based semiconductor manufacturer Inside Contactless in a partnership that will include a test next year that will pair PIN-based debit cards with contactless payments. But to keep transactions moving quickly, cardholders will not need to enter a PIN. The test will be yet another as card networks, processors, banks and vendors try to find a winning formula for the much-ballyhooed contactless card that uses radio technology to pass data between the card and payment terminal at close range. Issuers have pumped out millions of contactless cards, but there are fewer than 200,000 locations worldwide that accept them. With its upcoming test, Toronto-based Interac is aiming to bring cash-oriented, small-ticket merchants into the card-accepting tent, and also to convert more cash sales to debit cards for existing card-accepting merchants, according to Allen Wright, Interac's vice president for products. “We think contactless is a great product for the Interac product, that being debit,” he tells Digital Transactions News. Wright says Inside Contactless is a “strong global player,” and that Interac's pact with the firm goes beyond the upcoming test, though he wouldn't give details about other plans. Inside Contactless, which has its North American headquarters in Redwood City, Calif., is the leading provider of contactless chips for the banking industry, having shipped more than 100 million chips to financial institutions since 2005, according to Charles Walton, executive vice president for payments. Interac hasn't named the test site yet, but “we want an area that's relatively geographically self-sustained” where Interac issuers can distribute 150,000 to 200,000 cards, Wright says. Interac is recruiting banks and acquirers for the test, tentatively planned for three to six months. “Our goal is to have almost ubiquitous participation,” Wright says. Each card will contain the so-called EMV (for Europay/MasterCard/Visa) chip that is being installed in all payment cards across Canada as the country gradually moves away from magnetic-stripe technology (Digital Transactions News, Oct. 28, 2008). The EMV chips require contact between card and terminal, but the contactless capability will come from an Inside Contactless microprocessor, making the cards so-called dual-interface cards. Inside Contactless also developed the operating system and the applications that run on its microprocessors. “We've reached an agreement with Interac where we will implement their payment scheme,” says Walton. While Interac transactions traditionally require the cardholder to enter a PIN, that aspect will be waived for the upcoming test, Wright says. A big reason for that is not to slow transactions down since speed is a key selling point for contactless payments. The protections provided by the EMV chip, card issuers' own risk-control procedures, and industry practices and regulations to make cardholders whole in case of fraud will provide sufficient security, according to Wright. That policy “makes sense” for merchants, says Nick Holland, senior analyst with Boston-based Aite Group LLC. “If they want the best of both worlds, they get a debit card transaction, which costs less than a credit card transaction, and they get the speed,” he says. Interac's per-transaction network pricing is 0.8 Canadian cents to the acquirer and 0.8 cents to issuer. Holland adds that chip cards are far more costly for fraudsters to duplicate than mag-stripe cards. Walton says Interac's plans show it is a “very progressive” domestic debit network. “I think they're wanting to be viewed by their owners and customers as being cutting edge,” he says. Being on the cutting edge could help Interac maintain its relevance as the international card networks, especially Visa Inc., eye Canada as a new market for their debit cards (Digital Transactions News, Dec. 4, 2008).