German smart card manufacturer Giesecke & Devrient (G&D) is banking on the Canadian market’s impending move towards chip-based payment card systems to boost its Canadian operations.
G&D has more than doubled its manufacturing plant space in anticipation of more business coming from Canadian card issuers’ and merchants’ migration from the current magnetic stripe-based payment cards to the highly secure and application-rich chip-based EMV (Europay MasterCard Visa) smart cards.
EMV is an international standard for chip-based payment cards for ensuring global interoperability of different payment cards and payment terminals.
Chip-enabled cards work similarly to traditional magnetic stripe cards but with greater capacity to store large amounts of encrypted information and applications.
Based in Munich, Germany, G&D is also looking to serve the government sector as it explores the deployment of highly secure identification cards through smart card technology.
G&D recently moved from a 60,000-sq. ft. manufacturing plant to a newly built 125,000-sq. ft. facility in Markham, Ont. “With the new facility in Markham we are able to supply the growing demand of the North American market effectively from both a volume and technology perspective,” said Michael Kuemmerle, G&D group executive for cards and services.
Although the market is deemed to be moving toward smart cards for various purposes including payment systems, identity management, information and physical security, more education around the technology is still required, said Kim Madore, vice-president for emerging technology at G&D.
“Right now, there’s a lot awareness building that [smart card] technology is out there. People have adopted these types of cards simply because that was the thing to adopt; they didn’t really adopt them because they thought [they can get] a lot of exposure and benefits with them,” said Madore.
She added that G&D’s market awareness initiatives are focused on explaining the different functionalities and security features available with smart card technology.
MasterCard Canada and Visa Canada earlier announced that they will switch to chip-embedded EMV-based payment cards by 2010. The two companies are working closely with their respective card issuers and acquirers to assist in the system migration process, according to executives from both MasterCard and Visa.
The migration would entail significant investment on the part of card issuers as smart cards are “exponentially more expensive” because of their security features and better functionality, said Allen Wright, director of chip initiatives at Visa Canada Association in Toronto.
Acquirers, on the other hand, would have to invest in upgrading their point-of-sale systems, call centre systems, security infrastructure and “anywhere that the card would touch their system,” he added.
The 2010 target, however, is not a mandate for card issuers and acquirers but a “liability shift,” Wright said. This means that by 2010 card issuers will assume the liability for fraud as long as chip-based cards are used.
“While you don’t have to migrate (to smart cards), if you’re the weak link and if the merchant is still on magnetic stripe (cards), the responsibility lies with him,” explained Wright.
Incidents of fraud are significantly reduced with smart card technology using public key cryptography as its foundation, “which is not known to have been broken yet,” said Wright.
Although it is not impossible for a criminal to break into the security of a smart card, the IT resources needed to employ brute force attack on a chip-embedded card makes it uneconomical to even try, explained the Visa executive. Wright said it will cost an attacker $100,000 to perform brute force attack on one specific card. “To break into a card that has a $20,000 credit limit would not be economical.”
To help Canadian merchants with their migration to chip cards, MasterCard and Visa are providing various resources. Most of these resources are from the European Union (EU), which has already implemented chip-based EMV payment cards.
A body called Multilateral Facilitation and Coordination Group is working with Canadian merchants to try to align as many policies as possible around how to implement the chip migration based on EMV standards, according to William Giles, vice-president for emerging technology at MasterCard Canada. The policies also factor in variables that are unique to the Canadian market, such as the Interac system.
“We are basing the EMV migration on each one of our members building a business case to implement EMV at a time that makes more business sense to them,” said Giles.
In Canada, MasterCard has 15 card issuers, including large banks and retail companies. Giles said it is important to begin migration initiatives with a business case that enables the organization to evaluate all aspects of the migration from an enterprise perspective.
“Not all business cases are built on fraud mitigation associated with the chip technology. Some of them are based on the fact that that chip is now becoming a part of doing business in the credit card space,” the MasterCard chip expert noted.
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