Visa International and Hypercom Corp. are accelerating their plans to enable all their point of sale terminals in Brazil to handle smart cards.

Visanet Brasil, an association made up of Visa and several large Brazilian banks, said it would pay Hypercom $7 million to upgrade its network and more than 110,000 POS terminals throughout the country.

Under the terms of the agreement, announced Wednesday, Hypercom, of Phoenix, will install smart card readers and software on 56,000 terminals and 56,000 PIN (personal identification number) pads on the company's T7 terminals throughout Brazil. Visanet has about 200,000 POS terminals in Brazil, and almost half of them already are smart card enabled.

George Wallner, the chairman and chief strategist of Hypercom, said the upgrade was begun about a year ago, but the cash infusion from Visanet will speed up the pace. "The whole process is accelerating quite rapidly as smart cards are starting to become more mainstream and more important in Brazil."

Within about a year Brazil, the most advanced economy in Latin America in the use of electronic payment tools, will be 100% smart card enabled, he predicted.

Latin America remains behind the United States in terms of issuance of electronic payment tools like credit and debit cards. But those in Latin America who use cards with embedded computer chips tend to use them primarily as a payment tool.

Randall Shuken, the senior vice president of e-business in Latin America for MasterCard International, said the smart card infrastructure there is far more complex than it is in the United States. "In the U.S., most of what they're doing on smart cards is not payment. They're doing Internet ID and access," he said. "In Latin America, we're doing an end-to-end merchant [and] cardholder migration."

For example, this year the Latin American board of directors for MasterCard passed a rule requiring that by 2004, if a smart card is presented for payment, and a fraudulent transaction occurs because the merchant did not have a smart card reader, the acquirer who placed the terminal is liable for that transaction.

Mr. Wallner noted that in addition to the liability threat, merchants will be "encouraged" to read the chip instead of the magnetic stripe through lower fees for smart cards.

"This is the right way to go about introducing smart card technology," he said. "This way it doesn't turn into a consumer issue."

He was referring to smart card pilot programs performed in New York and Great Britain in the late 1990s that were poorly received. However, those products, while smart card enabled, were really stored-value cards, Mr. Wallner said.

"There's no issue of consumer acceptance," he said. "If your new Visa card arrived in the mail tomorrow with a chip on it, and it didn't cost extra to you, would you worry about it?"

While the terminals will be upgraded for smart card use, they still will be able to read magnetic stripe cards as well.

MasterCard also is upgrading some of its terminals in Brazil and other Latin American countries, but it says it is picking those that have the largest transaction volumes or are in areas where fraudulent transactions are more likely to occur. Those terminals represent about 60% of the total volume in MasterCard's business in Brazil, the association says.

"The migration to chip is similar to the migration of the last 20 years from imprinters to electronic authorization terminals," Mr. Shulken said. "The first merchants to be converted were those with the highest volume and the most potential for either fraud or credit risk."

Hypercom also is increasing its shipments of smart card terminals in the United States by about 50%, and with its advanced ICE terminals, "almost 100 percent go out with smart card readers," Mr. Wallner said. Large multilane retailers are the most likely businesses to be buying smart card terminals in the United States, he said.

"As Visa and many of the issuing banks are talking about rolling out smart cards, many merchants realize today that when they buy terminals, it's much cheaper to include a smart card reader now than having to buy a new terminal in let's say two years' time," Mr. Wallner said.

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