Before too long, the debit and credit cards in your wallet may be sporting a shiny new look. Banks and the major credit card associations have begun to introduce chip technology, sometimes called smart card technology, for debit and credit cards.

In addition to the magnetic stripe on the back, the cards will be embedded with a microchip - really a small computer - that will process transactions. You'll notice a few changes in the way you use your cards. When using your debit card, you or the merchant will insert the card into a merchant terminal rather than swiping it and the card will remain in the terminal during the transaction, much as we have now with ABMs. While the card is in the reader, the chip will be communicating directly with the card issuer as you complete your transaction. The transaction will work in the same way for credit cards and you will begin using a Personal Identification Number (PIN) just as you do now for debit card transactions, rather than signing a receipt.

Why Chip...Why Now?

Canada's current debit and credit card systems are very safe and fraud, usually as a result of skimming, impacts fewer than one per cent of cards in circulation every year. Banks are always looking for ways to enhance the security, however, and the microchip is state-of-the-art in payment card technology because the microchip is extremely difficult to duplicate. In fact, chip cards have reduced fraud in a number of other countries where they are currently used.

Implementing chip-based technology is a huge undertaking, however. Think about it: millions of cards, thousands of merchant terminals, gas pumps, and all cash and bank machines will need to be replaced or upgraded to process transactions from the chip. Work is already underway, though, and many machines in Canada are already able to read chip cards. VISA, MasterCard and the Interac Association, which runs the network linking banking machines and point-of-sale terminals, are jointly planning a chip technology trial in Kitchener-Waterloo, Ontario starting in the fall of this year to test the infrastructure and ensure a smooth transition for customers. After that, the gradual roll out of chip technology throughout Canada will begin, with almost everything in place by 2010.

Protecting Yourself From Card Fraud

Banks are working on many initiatives and are always looking at new technology, like chip, to protect customers. However, there are simple steps you can take to protect yourself when using your debit and credit cards:

• Use your shoulder or your hand to shield your PIN when entering it into the keypad. Even if criminals have been able to "skim" the information from your debit card to create a duplicate card, that card is useless to them without you PIN.
• Make sure your PIN cannot be easily detected if your card is lost or stolen - don't use your birth date or address or part of your telephone number.
• When travelling, carry your cards with you or make sure they are in a secure location. Shop at a travel store before your trip and purchase a money belt to ensure that your cards and money are kept hidden yet easily accessible to you.
• If anything seems unusual about the ABM or point of sale terminal, don't use it; report the situation to police or your financial institution.
• Review your monthly bank and credit card statements and report any transactions that you did not authorize to your financial institution immediately.
• Report a lost or stolen card as soon as you notice it is gone. Your card issuer will cancel your card and issue you a new one.
• Never give out your credit card number over the phone or Internet unless you know you are dealing with a reputable company.
• Always check your card when it is returned to you after a purchase to make sure it is yours.

The Interac Association, VISA and MasterCard are bringing chip card technology to Canada on behalf of the banks and their other members. To learn more about chip technology, visit their websites at: www.interacchip.ca, www.visa.ca/chip, www.mastercard.ca/chip.

For more debit and credit card fraud prevention tips, or to download the CBA's free booklet, Safeguarding Your Money, visit the Fraud and Security section of the Canadian Bankers Association website. Booklets are also available by mail by calling 1-800-263-0231.

Canada's banks take the issue of privacy, security and fraud prevention very seriously. They work hard to prevent their operations and customers from being used for any kind of financial crime and to raise awareness about the ways that customers can protect themselves.

As a consumer, you also have an important role to play in preventing fraud. This month we'll be taking a look at the introduction of microchip technology to Canadian debit and credit cards.