Mild-Mannered Canadian Fury

Doug Stephen is Politely Peeved

Hacker News discussion on Square's Canadian Launch

Wed, 24 Oct 2012 Ā«permalinkĀ»

One thing that has always baffled me about the U.S. is how insanely far behind they are on payment processing. And no, this isn’t going to be an NFC wallet thing, or a joke about the iPhone not having NFC payments. It’s about credit and debit cards.

Square, the smart phone payment service, recently expanded to Canada. As you can see by reading through the HN posting, they completely neglected to take in to consideration that almost nobody in Canada uses swipe credit cards.

For at least the past five or ten years, credit and debit card payment methods in Canada have been way ahead of the curve compared to the U.S. If you pay with debit or credit cards at a restaurant, it’s a standard in Canada for your server to bring you a wireless payment terminal and have you observe the charges and swiping happen tableside. Debit transactions in Canada are handled by a not-for-profit inter-bank union known as Interac. Since they are non-profit, they don’t directly charge fees to customers like some debit networks. And lastly, in the past five years or so, Canadian credit cards have contained smart security chips, which basically allow you to “mount” your card in a reader instead of swiping it, and it stays there for the duration of the transaction. It incorporates a lot of technology that greatly improves the security of the transaction; it is effectively similar technology used by SIM for unique identification, but a little more secure for transactions.

All of these technologies are not new, but are newer than magnetic strips and the U.S.’s existing payment infrastructure and are fairly widespread throughout the world. I’m pretty sure that if you brought an American diner a wireless credit card terminal to pay for their meal tableside, they’d think they were living in the future even though these payment terminals are over a decade old.

Anyway. By 2015, most Canadian vendors will stop accepting swipe cards; they will still possess the ability to process them, but if a card is issued from an institution that issues smart cards is swiped at a Canadian vendor, it will most likely trigger a fraud alert. This allows them to remain backwards compatible with U.S. tourists, whose institutions won’t see the swipes as frauds since they aren’t issuing smart cards.

This is an odd case, to be sure. Square is an American company and probably didn’t foresee something like this. Or maybe they are prepared for this and they’re intending to roll out a new smart card compatible card reader. But this is a hell of a gotcha.

The better solution would be for the U.S. to just get off their asses and try catching up to the rest of the planet.