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Interac Drives Fraud Out of Canada with EMV, Online Security

EMV-chip technology has driven down fraud on Canada's Interac debit network, but that fraud isn't moving online. It's fleeing the country.

Fraud through card skimming dropped to $29.5 million last year, well below its high of $142 million in 2009. Only 25% of losses in 2013, or $7.3 million, came as a result of fraud within Canada. The majority of the rest of the losses are attributable to non-chip transactions performed in the U.S., Interac says.

"The mag stripe will still exist for global interoperability, but within Canada, the benefits should clearly continue [because of EMV chips]," says Caroline Hubberstey, head of external affairs for Interac Association and Acxsys Corp.

Toronto-based Interac Association develops and operates Canada's national payment network. Acxsys provides the Interac Online services that allow consumers to make e-commerce payments directly from their bank accounts.

EMV-chip cards reduce risks of skimming and counterfeiting, but they do not protect online payments. Because of this risk, Interac established Interac Online, which requires cardholders to log into their bank account rather than provide financial information directly to the merchant. Interac does not allow cardholders to make card-not-present, offline or signature transactions.

Interac Online is "a real-time payment and a good-funds model with no chargebacks for the merchant," Hubberstey says.

The same protections do not apply in the U.S., which is far behind Canada in its shift to EMV-chip cards. Though Interac is a domestic network, it has an arrangement with NYCE network that allows Canadian cardholders, through participating financial institutions, to make purchases from nearly 2 million U.S. retailers, Hubberstey says.

The participating financial institutions would absorb the fraud losses that occur from skimming at the ATM or at the point of sale, she adds. 

The number of Interac cardholders reimbursed for fraud by financial institutions dropped to 72,200 in 2013, compared to 238,000 in 2009. By the end of 2015, all point of sale terminals in Canada will need to be able to accept EMV cards, Hubberstey says. 

Interac's accomplishments in fighting fraud resonate with those who have supported EMV smart card technology around the world, says Julie Conroy, senior analyst and fraud expert with Boston-based Aite Group.

"This is why so many proponents in the industry have been clamoring for EMV for such a long time," Conroy says. "EMV is very effective at counteracting counterfeit fraud."

The association continues to roll out Interac Flash for contactless debit transactions throughout Canada.

In 2012, the association introduced Interac Flash terminals at movie theaters for low-value contactless debit transactions.

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