Withdrawing money from your local bank's ATM machine should take a matter of minutes. The last thing you want when you push the withdrawal button is for the screen to flash back 'insufficient funds'. Your bank balance is at zero or overdrawn and your account frozen. Years of hard-earned savings are gone and reality sinks in: you have just become the latest victim of fraud.

The RCMP reports that debit and credit card fraud is becoming more common. In 2005, banks and Canadians lost more than $126 million from counterfeit cards alone. The risk of fraud, however, has not curbed Canadians from embracing debit card technology. The Bank of International Settlements reports that the number of debit card payments for products and services in Canada grew to 3.3 billion transactions in 2006, from about 2.4 billion in 2002.

The RCMP points to organized crime as being the primary force behind the creation and use of fake debit cards. Criminals use machinery that copies or "skims" information from the magnetic strip on the back of debit and credit cards and records the personal identification number (PIN) of the individual making the transaction. The criminals can then create counterfeit cards that allow them to drain their victims' bank accounts or rack up a mountain of debt.

"Bank cards are very safe," says Tina Romano, the communications manager for the Interac Association, Canada’s largest debit card service. "Of the close to four billion transactions we saw last year, 99.9 per cent of them were problem-free. But the possibility of copying them is there, even though it's very small."

While banks and card companies will ultimately cover the losses, it can be months of legal wrangling for the victims as they work to prove they were the victims of fraud. In some cases, victims' financial credit is damaged long-term.

Starting in the fall of 2007, Interac and the major credit card companies will have another weapon in their arsenal to help curb identity theft and counterfeit card use.

After completing a market-trial period in Kitchener- Waterloo, Ontario—Interac, MasterCard Canada Inc. and Visa Canada Association will launch the use of debit and credit "smart" cards that feature an embedded EMV chip.

The EMV stands for Europay, Mastercard and Visa, the chip's industrial developers whose intent is to enhance the security of bank and credit cards. Because the chip is more difficult to duplicate than the existing magnetic stripe technology, it helps protect consumers against fraud stemming from debit-card skimming and credit-card theft.

Since their introduction in France, in 1984, over 45 countries have adopted and are using the technology, including the United Kingdom, Brazil, Australia, Japan, and Russia.

On the front of the latest cards, cardholders will see a metallic chip. This chip will act as an added measure of security. The cards will function much like existing cards, except that instead of swiping, cardholders will leave their card in the reader during the transaction.

The Interac Association plans to discontinue the use of magnetic-strip cards at Canadian bank machines by the end of 2012, and at direct-payment or debit services by the end of 2015.

Though EMV is an industry standard, its developers created it based on specifications set out in the international standard (ISO 7816), which the International Organization for Standardization developed in 1998.

ISO 7816 sets out the physical characteristics of integrated chips in identification cards, such as power requirements and how information is stored and accessed.

Catherine Johnston is the chair of the Canadian advisory committee to JTC1/SC17, the technical committee that deals with cards and personal identification. She says the information stored on EMV chip-enhanced cards will be vastly more secure than what is stored on the cards' magnetic strips.

"In terms of security, the chip is like a mainframe computer, rather than like a desktop computer," she says. "Usually, if someone has physical access to a desktop computer, that person can access the information stored on it quite easily. But with these chips, like mainframes, even though a person has physical access to them, that isn’t enough to access the information; the person has to do everything the security measures require to gain access to the information."

Johnston says the chip-enhanced cards are "much more counterfeit- and tamper-resistant," which should cut down on the amount of identity fraud that stems from stealing information stored on bank and credit cards.

The use of smart cards has already led to a reduction in identity fraud-related crime in other parts of the world, says Judi Levita, the manager of media relations for Royal Bank of Canada, which has been issuing chip-embedded cards to its Avion credit card customers since 2003.

She says the company made the chip-enabled cards available before the chip readers were used in Canada because the bank wanted to provide its customers with the extra security of the technology while they traveled to other countries.

"It’s a technology that allows for highly secure transactions because the chip verifies both the card and the cardholder. It’s a way we can offer our clients better protection in terms of their financial information," Levita says, noting that Europe has already seen a significant decline in card-related fraud since it started using the chip technology.

If Canada sees the same reduction in bank card-related theft, its effects will be felt by all of society, says Johnston.

"If the cards in our wallets are safer, that means we're cutting down on the funds that are reaching organized crime," she says. "If we make it more difficult to take part in this sort of crime, then it's less attractive for criminals."

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This article first appeared in Volume 34 of CONSENSUS Magazine, 2007.  The information it contains was accurate at the time of publication but has not been updated or revised since, and may not reflect the latest updates on the topic.  If you have specific questions or concerns about the content, please contact the Standards Council of Canada.