WINNIPEG, Manioba and FRASER VALLEY, British Columbia — A pair of Canadian credit unions has taken the law into their own hands and those of their members.

Cambrian Credit Union in Winnipeg, Manitoba and Mt. Lehman Credit Union in British Columbia's Fraser Valley started sending out e-mail alerts last year to members' mobile devices whenever their debit cards were swiped at a retailer's point-of-sale terminal or inserted into an ATM.

The initiative is the central prong in their efforts to tackle one of the biggest issues facing the banking sector today on this side of the Atlantic Ocean–card skimming. Despite double-digit growth of debit card fraud over the past several years, the industry has been surprisingly slow to adopt new technologies to keep cards, and the money they can access, out of the wrong hands, says Connie Clarke, vice president of systems and administration at Cambrian.

She says the magnetic stripe technology used in North America is prehistoric compared to the chip cards that have been used by European financial institutions for a number of years.

“Criminals take the path of least resistance. If it's harder [to do] in Europe, they come to Canada and the U.S.,” she says. “Skimming is a significant problem for everyone. You don't want it to undermine the credibility of the direct payment network. You don't want people to be afraid to use their cards.”

Members at Cambrian and Mt. Lehman are required to sign up for the service, which sets parameters for the alerts, such as purchases or withdrawals over a certain dollar amount or the time of day of use.

Clarke says if a member gets an alert and knows they didn't use their card, they can log in to their account online to see what's going on. If some illegal transactions are indeed taking place, they can cancel the card themselves with a click of a mouse. If they're not near an Internet connection, they can call a toll-free hotline and accomplish the same goal.

Gene Blishen, general manager of Mt. Lehman, says it only takes a few seconds once a member's card has been swiped for its system to send out an alert.

“A lot of times the cashier will give you the receipt and your cell phone will go off at the same time. [The alerts] give a sense of security to people, especially older people who didn't want to use a bank card. They bought into it right away, they feel confident with it,” he says.

Both institutions and many of their peers are anxiously awaiting the results of this fall's pilot project of chip cards, which will take place in Kitchener-Waterloo, Ontario, a community of about 300,000 about an hour south of Toronto.

Kirkland Morris, assistant vice-president of strategic policy and programs at the Interac Association, which oversees Canada's direct payment system, says chip technology is vastly superior to the magnetic stripe because the built-in security features make the card's data much more difficult to copy or otherwise obtain.

“You're really putting a small computer in the wallet of every debit card holder in the country,” he says. Once the pilot project is completed, banks and credit unions north of the border will start issuing chip cards and rolling out chip-enabled ATMs over the next two to three years with the goal of transitioning the entire direct payment system, including retailers, to chip technology by 2015.

Morris stops short of saying card skimming will become a thing of the past once chip cards flood the market. “I would be hesitant to say anything is impenetrable. Chip technology provides us with a huge leap forward in terms of security. It allows us to evolve security within the new technology. Each time you get a new debit card, it can have more security features than the one it replaced,” he says.

Brian Fisher, Pittsburgh-based risk manager of the CUNA Mutual Group, the leading financial services provider for credit unions and their members in the U.S., says he's anxious to see how successful chip cards are in Canada.

Card skimming is a significant problem for credit unions in the U.S., as well, he says. Reported losses grew from US$57 million in 2004 to US$89 million in 2005, a growth rate of 56%. The damage slowed in 2006 to 11% making for $98.7 million in losses.

“Plastic cards have really become an area of strong concern for CUNA and credit unions in the U.S. over the past 18 months,” he says.

He says CUNA is looking for any new technologies and features that can help attack the skimming and counterfeiting problems, including chip cards, biometrics or pay-by-touch.

“There are different technologies out there. We're trying to encourage any use of technology that will help us deal with that problem,” he says.

Brian Triplett, senior vice-president of emerging product development at Visa USA, says while card skimming and other fraudulent activities are definitely a concern, they only represent about six cents per every $100 transacted. “It's an extremely small percentage of our transactions in dollar volume,” he says. He says Visa is focusing on a multi-layered strategy to protect against fraudulent use of account data. One element of that is in-flight scoring, which looks at the characteristics of a transaction, such as the dollar amount, historical use of the card or the type of store in which it's taking place, as it's going through its network to determine if it's legitimate.

He says the country's largest debit brand is also looking at contactless chip and mobile phone payment technologies. Another work in progress is radio frequency-enabled cards.

“Instead of swiping, you hold it in front of a reader and it shares the information that way. It includes dynamic data for each transaction which makes every transaction unique,” he says. “Fraudsters can't get a hold of that information and make counterfeit cards and they can't use it in other ways, like e-commerce. The dynamic data would recognize that it's a copied transaction and we would decline it.”

Triplett says the new technologies will start to emerge in the U.S. in “the next year or two.”

Clarke says while the costs of adopting up-to-date technology could run well into the hundreds of millions of dollars in Canada, it would be even more expensive to ignore the problem.

“The cost of not having it is rising costs through fraud. If you're not protecting against it, you may as well shut your doors,” she says. –gmkirbyson@shaw.ca

Instant Insights /

Canadian Credit Unions Take Card Fraud Prevention to New Levels; U.S. Protections Lag

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