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When Will the Cashless Revolution Happen Here?

For Canadians traveling within the United States, five Canadian financial institutions provide their customers with a cross-border debit option: They can use their Canadian banking cards at merchants in the United States who are associated with the NYCE network. However, Canadians traveling to the States are quickly reminded that they can't enjoy the convenience of the familiar INTERAC system after they cross the border. Even in a place like New York City that has it all, you can't swipe your debit card to pay for a movie ticket or a cab ride. The American marketplace remains dominated by cash, check, and credit card transactions, with smart cards more likely to transform point-of sale-behavior than debit cards.

But why? And can the same revolution ever happen in the United States? Fletcher answers the question this way:

Debit was a phenomenon in Canada and Australia, but virtually nowhere else, including the U.S. At the time of debit's inception in Canada, you could count all the really significant banking players on one hand. At the same time in the U.S., there were over 15,000 merchant banks. A small number meant it was easy to work together to create a well-thought-out specification for something like debit, addressing a myriad of issues, then execute on it cleanly and concisely. As universal telecommunications are also required to make debit work, this also played a part. In the U.S., telecoms are fragmented. In Canada—better integrated, fewer players. Europe is much like the U.S.—lots of banks in lots of countries. Australia is more like Canada. Of course, other schemes have and will continue to emerge in the U.S., but I doubt debit, as it is in Canada, will ever get the same traction in the U.S.

Security might be another reason why Americans are slower to adopt debit cards. Debit card fraud has been on the rise in Canada. Although the terminals and back-end systems are extremely secure, Fletcher says that the debit cards issued by the financial institutions are the weakest link, with debit card "skimming" becoming a problem. INTERAC Association reports that its members reimbursed $60 million to cardholders in 2004 because of skimming.

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