The Interac Association is a Canadian organization- wide network of enterprises that have proprietary networks so that they can communicate with each other for the purpose of exchanging electronic financial transactions. The association was founded in 1984 as a joint venture between five financial institutions: Royal Bank of Canada , CIBC , Scotiabank , Dominion Bank of Toronto and Desjardins . Interac essentially serves as a Canadian debit card system as traditional debit card providers, Visa and MasterCard, only provide credit cards in Canada. Interac’s 2010 request to become a commercial organization was denied by the Competition Bureau…
By 2010, there were over 80 affiliates and over 59,000 Automated Banking Machines that can be accessed through the Interac network in Canada and over 450,000 merchant locations hosting it.
Interek’s main office is located at Royal Bank Plaza in Toronto .
The Interac Association is the organization responsible for the development of a national network of two common electronic financial services:
Interac Direct Payment (IDP)
- Interac Direct Payment (IDP) is Canada’s national debit card service for purchasing goods and services. Customers enter their personal identification number (PIN) and the amount paid is deducted from either their chequing or savings accounts.
- Since 2001, the number of transactions completed through Interac Direct Pay has surpassed those completed using physical money.
- Beginning in 2004, IDP purchases could also be made in the United States at vendors on the NYCE network .
- IDP is similar in nature to EFTPOS in use in the United Kingdom , Australia and New Zealand .
How Interac Direct Payment (IDP) Works
IDP purchases can be made at all participating retailers, regardless of the financial institution, by issuing the debit card used, and normally IDP will not charge a buyer any fees to use the program. Banks may impose a charge to remove funds from an account previously funded a purchase, but these fees are not related to the IDP itself. IDP will instead charge a flat fee to retailers. There are simply under 550,000 IDP terminals in use throughout Canada; through these terminals, 3.5 billion POS Point of Service transactions were completed in total CAD 156 billion in transactions in 2007. On December 23, 2005, a new record for single day transactions was set with 15.5 million transactions processed.
Four Steps to Completing a Deal
The “Interac Inter-Member Network” is a complex network known as “distributed architecture” throughout the country. The possibilities of all network shutdown are very remote, as the network does not have a single “point of failure”. If a single participant experiences short-term technical difficulties, it is not possible for the entire network to fail.
- The procedure begins at the time the buyer makes a purchase with his or her banking or debit card; it is handled with Interac Direct Payment service. The employee will then record the sale and enter the actual price in the “point of sale terminal”.
- Either the buyer or seller will swipe the card through the reader, or insert the EMV chip card into the chip reader (usually integrated into a pin pad). At this point the purchaser will enter his or her “Personal Identification Number (PIN)” into the reader. The transaction amount is verified and the account to be debited is selected by the consumer.
- The sale is committed throughout Interac where the buyer’s financial services firm verifies the debit card, PIN, and funds available in the account. The purchase is completed after these three steps have been verified by the buying institution.
- The transaction receipt is returned to the buyer along with the bank or debit card.
Using Interac the system reduces the need to visit an ATM or carry large amounts of cash. Service fees for sellers are much lower than credit card discounts for making sellers Interac the preferred payment option for 52% of Canadian merchants.
Complete risk reduction
A Private Personal Identification Number (PIN) is selected by each cardholder to access their individual accounts. This “Two-Factor Authentication” (Card / PIN combination) increases the security and privacy of the system, helps eliminate the anxiety of theft, and makes it impossible to access funds in an account without an appropriate PIN.
Consumer protection in Canada
Consumers in Canada are also protected under a voluntary industrial code that is overseen by the Canadian federal government. The Canadian Code of Practice for Consumer Debit Card Services (sometimes referred to as the “Debit Card Code”) covers all debit card service providers. Compliance with the Code is overseen by the Financial Consumer Agency of Canada (FCAC), which investigates consumer complaints.
According to the FCAC, revisions to the Code, which went into effect in 2005, place a burden on the financial institution to prove that the consumer was responsible for the disputed transaction and also set a limit on the number of days that the account may be frozen while the financial institution investigates the transaction.
Privacy & Security
Compared to other forms of payment, only a limited amount of information is shown with each transaction. The only personally identifiable information found on a typical receipt would be the customer’s card number, usually consisting of only the last four digits of the card and account selected (chequing / savings).
In comparison, when the check is parsed by the merchant, the customer’s name, address and phone number are in the upper left corner of the check, and a coded MICR account number is printed on the bottom of the check. In addition, because checks are easily falsified, sellers will often ask for identification documents, usually with a photograph, to prove that the issuer of the check matches the check information.
IDP disadvantages and features
Interac Direct Payment is a PIN-based system where information entered into a PIN pad is encrypted and verified at a central server, instead of being stored on the card itself. Because of this, it is significantly more secure than traditional signature or card-based transactions. Despite these security mechanisms, there are ongoing fraud problems, especially when debit cards are scammed or scanned– the compromised ATM or POS terminal will record the account information contained in the magnetic stripe of the card, allowing for duplicate cards to be generated at a later time. The cardholder is then secretly taped or supervised entering their PIN, allowing the culprit to use dual cards to make fraudulent purchases.
Going to Interac Chip Cards
To combat the security of fraud and increase, Interek announced that it will move into EMV Chip Card technology , which began with a market trial in the Kitchener-Waterloo area in Fall, 2007. The main benefit for this technology over existing magnetic stripes is that chips are nearly impossible to copy due to high encryption levels. It is seen as the ability to reduce the amount of debit card fraud caused by sliding card and duplication. However, the new Interek Chip Cards will continue to display a magnetic stripe in the meantime for them to be used in ATMs or retailers that have not yet been upgraded, as well as in countries that have not yet adopted chip cards such asUnited States .
The consumer shopping experience will remain largely unchanged except instead of hitting the card hard, it will be inserted into the PIN Pad chip reader and will remain inserted for the duration of the transaction. PINs will still be used as a means to authenticate transactions.
Interek expects the transition to chip cards will take several years to complete, but will be completed ahead of certain landmark dates:
- After December 31, 2012, all ATM transactions must be completed with a chip card
- After December 31, 2015, all POS transactions must be completed with a chip card
Shared Cash Dispensing (SCD)
- Shared Cash Dispensing (SCD): A cash withdrawal from any ABM not owned by the cardholder’s financial institution.
- This is a Canada-specific service similar to international systems such as PLUS or Usyk .
- Virtually every ABM in Canada is on an Interac system.
Interac Postal Money Order
Interac Postal Money Transfer Service is offered by CertaPay. This allows remote banking customers to send money to anyone with an email address and bank account in Canada. This is a branded Interac service operated by Acxsys Corporation .
Interac Online service allows customers to pay for goods and services on Internet use funds directly from their bank accounts. Because no financial information is shared with the online seller, Interac Online service is safer than online credit card payments. This service, Interac branded service operated by Acxsys Corporation, began in 2005 and is expanding as more vendors decide to participate. Since November 2007, the service has been available to customers for four years of the five largest Canadian banks: RBC Royal Bank , BMO Bank of Montreal , Scotiabank and TD Canada Trust… Since February 2009, the service has been offered by approximately 300 merchants including two major universities (for tuition fees), the two largest wireless operators, provincial lottery corporations and a wide variety of retailers. Interac Online is an ePayments Remote Banking service very similar to IDEAL in the Netherlands , Giropay in Germany , and Guarantee Vault Payments in the United States .
In 2013, Financial Institutions in Canada that are Interac members can now issue a prepaid Interac Card. Examples of this are McDonald’s Monopoly winners receiving Interac Prepaid Card as their winnings. No bank account is required to use the Interac Prepaid Card.
Services not offered on Interac networks
It is currently not possible to transfer money internationally using the Interac network; however, most Canadian ABM maps are also associated with PLUS or Usyk or other networks with more global reach.