EMV: A Highly Profitable Investment
By Gordon Teasdale
Director, Fare Sales & Collection and Passenger Revenue
Société de transport de Montréal
In the wake of requests from the two main issuers of credit cards (Visa and MasterCard) to have bank cards migrate to the EMV (Europay MasterCard Visa) standard, Canadian financial institutions have had to gradually roll out chip cards to their customers over the last few years. These new chip-based credit cards now meet the EMV standard, an international security standard. Merchants offering their customers this method of payment will also have to comply with this new standard by December 31, 2015. Otherwise they will have to assume all costs related to any fraudulent bank card transactions.
That is the background for the interest taken by the Société de transport de Montréal (STM) in investigating the positive impacts of the application of this new security standard for the OPUS e-ticketing system upgrade deployed in 2010. The STM conducted comprehensive studies for close to a year, leading it to conclude that the anticipated benefits warranted the upgrade of all of its fare vending machines and reloading terminals. The fare vending machines allow customers to pay for their fares by cash or bank card, while the reloading terminals accept bank cards only.
Taking advantage of the summer season, generally a less busy time, the STM went ahead in 2012 with replacing the payment modules in equipment such as keypads and bank card readers. It also made changes to the existing software in the OPUS e-ticketing system, including an update of the middleware governing communications between the central OPUS system and the banking application used by the credit and debit card issuers. In so doing, the STM became one of the first corporations in Canada to meet the EMV standard.
An evolving collection system
Since it was first launched in 2008, the OPUS system has significantly reduced fraud associated with the collection of passenger revenue. However, payment by magnetic-stripe credit or debit card opened the door to a new kind of potential fraud. And indeed, the STM quickly realized that the use of fraudulent cards in the retail industry could pose a growing risk in terms of collection. Payment authorization via the banking network meant that not only the amount of the purchase was charged back to the STM, but also the administrative costs of the operation. While customers were mostly not affected financially, they too could suffer the consequences of fraud through the risk of credit or debit card cloning.
Accordingly, in 2009, the STM instituted various administrative and operational measures to limit the inherent risk, such as adding an anti-cloning device to card readers and tracking transactions in real time, which it did in collaboration with its security and control department and with the banking institutions. In addition, a temporary agreement was signed by the STM, Visa and MasterCard to refuse foreign credit cards on its fare vending machines and reloading terminals. Together, these measures bore fruit: they helped substantially reduce losses due to credit card fraud, which was estimated at more than $1.5 million in 2008 and 2009, and nearly $500,000 in 2011 and 2012.
Taking the necessary steps to optimize security
Bank card fraud is a well-known, widespread phenomenon in countries which have not yet adopted the chip card. In Canada, the issuing companies established a plan to roll out chip-based bank cards that provided for a sign-up period allowing merchants to install appropriate equipment for reading these new cards and bringing their bank payment modules into compliance. It should be noted that this new regulatory requirement was introduced because of fraud committed with chip credit cards processed using non-adapted equipment, the same way as magnetic-stripe credit cards. Since October 2010, the costs incurred by this type of fraud have been the merchants’ responsibility¾yet another argument encouraging retailers to comply with this new industry standard.
Direct benefits for countering fraud
The project team was tasked with recommending an organizational, financial and technological position with a view to upgrading the OPUS system to incorporate the EMV standard. Once the project was approved, STM then had to acquire the necessary technological components and install them in its own equipment and that of the Agence métropolitaine de transport (AMT). Finally, the team needed to plan effective customer support during the rollout so that customers could familiarize themselves with the new equipment. One of the goals of the rollout was to inform customers of this change when they used a bank card to purchase a fare. The new procedure required them to leave the card in the reader and then enter their personal identification number (PIN), whereas the old method involved quickly swiping the bank card in the reader. The upgrade of the equipment installed in Montréal’s 68 metro stations was spread over a period of approximately three months.
The results were convincing in every respect: the rapid implementation of the Europay MasterCard Visa standard enabled the STM to reduce bank card fraud. Among the benefits justifying the $3.75-million investment:
- Retailers who already met the EVM standard found that operating their payment system was simplified.
- The PIN chip card doesn’t only afford retailers with greater security, it also allows a host of possibilities in terms of advanced applications. For example, integrating innovative loyalty programs into existing payment cards offers retailers the opportunity to increase their market share while strengthening their brand.
- A very large proportion of Canadians are concerned about the security of information on their cards. More than half of them are afraid of having personal data intercepted at the point of sale. Furthermore, one-third of Canadians believe that responsibility for credit card security falls on retailers.
- Given that Asia, Latin America and the European Union have increasingly adopted EMV technology, a growing number of foreign consumers making transactions in Canada hold PIN chip cards. By offering public transit customers EMV technology for the purchase of transit fares, the STM aims to increase their sense of security.
This innovative project also promoted the integration of sound functionality in fare vending machines and reloading terminals, at a lower cost, while providing greater accessibility for blind and visually impaired people by allowing them:
· To be guided by audio instructions, generated by voice synthesis, when buying transit fares.
- To use a banking keypad with tactile touchpad in Braille.
- To use the OPUS system by means of an interface offering greater navigational simplicity.
- To better visually locate the functions displayed on the screen through the use of contrasts, which improve the equipment’s ergonomics.
Conclusive results: A choice that pays off
Financially speaking, implementing the EMV standard demonstrates beyond all doubt that bank card fraud is declining sharply. In fact, the STM has reduced its losses to a few thousand dollars, compared with approximately $500,000 per year before implementation. This result is especially positive considering that, over the same period, the STM experienced a 25% increase in transit fare sales via fare vending machines and reloading terminals.
As anticipated, losses are practically nonexistent, confirming that investing in this solution before the scheduled deadline at the end of 2015 is a choice that pays off, both for customers and for the STM.
 The Implications of Chip & PIN Migration: A Canadian Retailer’s Perspective, J.C. Williams Group, January 2007