Debit and credit cards in Canada are about to get smarter. Banks, the Interac Association and major credit card companies across the country have begun to implement new microchip technology into debit and credit cards, adding an extra layer of security to protect consumers.

Chip technology, sometimes called smart card technology, uses a small microchip which is really a tiny computer. It communicates directly with the payment processor throughout the full duration of the transaction, making a secure system even more secure.

How does it work?

The new smart cards will be embedded with a small microchip on the front. The chip will contain the information that allows the transaction to be made, information that is now found on the magnetic strip on the back of the card. Instead of swiping the card for debit purchases or having a merchant swipe it when making a credit card purchase, customers will now insert their card into a merchant terminal. The card stays in the terminal throughout the transaction as the chip is in constant communication with the payment processor. The screen on the terminal will display the amount of the purchase and request verification. Customers will then be asked to enter a Personal Identification Number (PIN) to authorize the transaction.

While using a PIN number is nothing new to Canadians making debit purchases, it will now also be used to make credit card purchases instead of providing a signature to authorize the transaction. Once the PIN has been confirmed and the purchase approved, a receipt will be printed and customers will be prompted to remove their card.

Customers issued a new chip card may notice that it still contains a magnetic strip on the back of the card. This is to ensure that customers continue to have access to the debit and credit systems during the transition period and while travelling to other countries not using chip technology. Over time chip technology will become the primary payment technology in Canada.

Added convenience, added security

Many regions of the world have already begun to use this new technology. To date more than 260 million chip cards have been issued in over 92 countries worldwide. The introduction of this new technology will speed up transactions and provide retailers and consumers with a safe, convenient way to withdraw cash and pay for everything from groceries and gas to appliances and vacations.

The current Canadian payment system is safe and secure, with incidents of fraud impacting less than one per cent of cards in circulation. However the new Chip technology provides an extra layer of security to the current system.

The microchip embedded in each chip card offers enhanced defence against fraud because it is virtually impossible to duplicate, eliminating the ability of fraudsters to copy the contents of the microchip to another card. And the use of a PIN number provides extra peace of mind for an individual whose card is lost or stolen. Furthermore, customers never lose sight of their card or hand it to another person when making a purchase as it is retained and controlled by the customer throughout the entire payment process.

Protecting yourself

While chip technology will make electronic payments even safer, there are a few simple things consumers can do to help protect themselves against fraud.

• Protect your PIN, always cover the key pad when entering your PIN number at a POS terminal to ensure no one can see your number
• Change your PIN and passwords regularly and never share them with anyone, including family and friends
• Check your bank and credit card statements regularly and immediately notify your bank if you notice any irregularities
• Report lost or stolen cards as soon as you notice they are missing. Your bank will cancel your current card and send you a new one

Visa, MasterCard and Interac are working with the banks to bring chip technology to Canada. To find out more about chip technology please visit the following websites:

• www.interac.ca/chip
• www.mastercard.com/ca/personal/en/
  mastercardsecurity/chip_and_pin.html
• www.visa.ca/chip/

For more 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.

Do you have an idea for a future fraud prevention tip? Send us an e-mail with your idea to FraudPreventionTips@cba.ca.

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 take a look at the introduction of microchip technology to debit and credit cards, and what that means for bank customers.