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Banks Assumed Consumers Would Opt for Smart Cards

The INTERAC Association reported in 2001 that 86% of adult Canadians hold at least one banking card in Canada for electronic transactions. For these consumers, the most popular places for debit card transactions are grocery stores (52%), drug stores (45%), and liquor/beer/wine stores (33%). INTERAC members also offer Shared Cash Dispensing (SCD) at more than 45,000 ABMs across the country. With SCD, consumers can visit any ABM that bears the familiar INTERAC logo, so they can withdraw cash from an ABM that does not belong to their own financial institution.

Dave Fletcher, Vice-President of Iders Inc., a contract electronic engineering, design, and manufacturing firm that developed the prototype pinpads for one Canadian bank, says that in the early 90s, banks assumed that consumers would ultimately opt for smart cards instead of debit cards:

There is a bit of irony here. While the banks believed electronic transactions would be significant, they were also certain debit transactions were a stopgap measure, believing the real future was in smart cards. With a smart card, the cash value is electronically located right on the card. No communications or remote banks involved. The cash goes from a chip on your card to a similar chip in the merchant's terminal. A smart card transaction costs a fraction of a debit card transaction, which is why the banks believed debit would not last because the consumer, not the bank, carries this cost.

It turns out folks were thrilled to have the convenience and were in fact willing to pay the service charges for low-value transactions. Additionally, all the bank investment into smart card pilot programs, launched in various cities back at the time, was a failure. People were not comfortable with the idea of a card actually having value stored on it, perhaps significant value. It could be lost or damaged, and folks weren't comfortable at the time with the security involved (though it's pretty good) in the smart card scheme. Similar U.S. smart card pilots have also failed or met limited success.

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