It's an open secret in the Canadian payments industry: the x.25 based telecom service known as Datapac, is on its way out. Its phase out has been marked by more of a whimper than a bang, with costs increasing, 'stop sell' orders, and the expectation that it will soon no longer be available at all. What is becoming clearer to industry players, though, is that EMV, the new global standard for integrated circuit (contact) smart cards, will be the death knell of Datapac. What does this mean for merchants and their providers? The time to plan for Datapac replacement is now - replacing new systems can take years for a large retailer, and it is becoming clear that time is running out.

The End of Datapac is Near
The end of Datapac has been coming for some time now. Merchants have learned from telecom providers such as Bell and Telus, that service for new locations is no longer available, and current service will be phased out. The challenge for merchants and processors has been to find a Datapac migration solution that can be deployed quickly, at a minimal cost. Processors have stepped in to offer Datapac to IP conversion products, which connect existing payment terminals to broadband. For example, a payment router by Precidia Technologies, an Ottawa based company, was recently certified by Moneris Solutions and implemented by a major retailer.

EMV Arrives on the Scene
As the discontinuation of Datapac looms, it is becoming increasingly clear that EMV will be here to stay very soon. EMV is a common global standard for integrated circuit (contact) 'smart' cards, developed by Europay International, MasterCard and Visa (now overseen by EMVCo.), and endorsed by Interac in Canada. The idea behind EMV is to facilitate interoperability between these new, more sophisticated 'smart' cards, and the terminals in the marketplace. It provides a common platform for debit and credit card processing, regardless of brand. Beyond these benefits of EMV, there is also a significant security advantage, with enhanced card risk management controls for specific types of purchases such as international, low-value payments, and high-risk merchants. Many industry insiders believe this is a key driver for EMV adoption. Phil Howell, vice-president product standards and implementations at Visa International, and a member of EMVCo's Board of Managers, says that EMV has already shown itself to be successful in reducing fraud. In Malaysia, "credit and debit card fraud - which prior to EMV deployment occurred at a very high rate - has been almost entirely eradicated".

How committed are we in Canada to implementing the EMV standard? Very. Just look at the numbers. EMV-compliant cards issued worldwide doubled in 2005, and Visa is already offering two chip-based cards in Canada. Visa has stated that it expects 85 per cent of its transactions will be between chip based cards and terminals by 2010. Interac recently pledged its commitment to complying with the standard by 2010, and announced plans with Visa for a joint chip card trial in Kitchener-Waterloo starting in Fall 2007. For their part, processors and banks are anticipating EMV: "It is not a matter of if, but when EMV will become a predominant standard in Canada", said Jamal Awad of Global Payments Canada. "We expect this standard to take hold in Canada by 2010, as a common platform for processing payments, as well as the enhanced security it offers", said Awad. Desjardins Banking Group similarly expects to become EMV compliant very soon. In April, the company announced that it would "issue chip-enabled debit and credit cards from 2008 onwards, although its chip card processing infrastructure will ready by end-2006". Bank of Montreal announced in 2005 that its EMV infrastructure will be launched and trialed in 2007.

EMV Will Spell the End of Datapac
While EMV carries with it the benefits of enhanced security and global interoperability, it cannot be accommodated by the legacy Datapac infrastructure Canadian merchants rely on to transport transactions today. A Datapac 3201 connection can handle up to 8 locations, running at 1200 bps, generally handling transaction packets under 256 bytes in length. Because EMV encrypts the entire packet rather than just a portion, it requires larger packet sizes of 750 bytes. The engineering cost to alter this aging infrastructure is simply not worth the investment. Beyond bandwidth, EMV presents additional challenges to the existing infrastructure. Terminals and other point-of-sale equipment must be EMV compliant, and processors are already shipping out new EMV terminals as part of the usual replacement cycle. As early as 2004, Desjardins had ordered 30,000 EMV compliant terminals, and Moneris, the first Canadian acquirer to achieve EMV certification from Visa, has been rolling out EMV terminals since the summer of 2005.

Migrating to IP Based Processing
The key to readiness for both the discontinuation of Datapac and the arrival of EMV is migrating from Datapac 3201 onto IP networks, which do not have packet size or bandwidth limitations, and offer cost savings along with faster transactions. The easiest, most cost effective route for merchants may well be the solutions offered by Precidia Technologies. Featuring both dial and serial ports, the devices migrate existing terminals, ATMs and other store equipment onto a broadband IP network. For merchants in a hurry for a Datapac replacement solution, they deploy easily, thanks to an internet-based configuration manager called NetVu, which preconfigures the device before shipping. With SSL encryption, EMV compatibility and bandwidth to spare, the merchant will be ready when EMV takes hold.

As for EMV, the 2010 deadline is closer than you may think. Anyone who has been involved in large scale equipment or system changes in the payments industry will tell of the many months required to research, test, pilot and implement. Merchants would be wise to take their cues from the banks and processors, already ordering and shipping EMV terminals, and the card issuers who are well on track issuing EMV compliant smart cards.

Deepak Wanner is president of Precidia Technologies, and an expert in IP conversion for legacy protocols such as X.25. A pioneer in the movement to adopt Internet Protocol (IP) based solutions in retail point-of-sale (POS), Deepak Wanner is the leading authority on integrating diverse POS systems onto one common IP network. Building on early successes in Canada, the world leader in debit card acceptance, Deepak is a strong proponent of network management in POS, helping merchants and other payments industry players realize the benefits of an actively managed network migration solution.