Navigating the Rocky Road to Chip and PIN
Is Apple Pay keeping you up at night?
Advancements in the mobile payment space have been explosive of late, and looming EuroPay, MasterCard, and Visa (EMV) regulations have retailers and restaurateurs alike scrambling to put together their migration plans. New government regulations around EMV (also known as “chip and PIN”), are intended to urge business owners to upgrade their point-of-sale (POS) systems to accept a new, more secure type of credit card. At the same time, contactless payment technology that gets rid of cards altogether is also taking hold—led by Apple Pay, with systems by Samsung and Android not far behind.
Business owners are looking forward to easier payments and less fraud, but confusion around making the conversion and shift in liability is causing a lot of stress. There are many onerous steps between where many payment systems are now and the sparkling distant future of fraudless payment transactions. The EMV Migration Forum forecasts that the U.S. will have 600 million chip cards in circulation by the end of 2015, but according to a recent survey from payments company ACI Worldwide, only 20 percent of retailers said they were confident they would be ready to accept them by the deadline of October 2015.
Mercator Advisory Group estimates that credit and debit card fraud costs card issuers more than $2.4 billion annually. According to Cayan (formerly called Merchant Warehouse), the U.S. has been the No. 1 country for card fraud in the last five years due to the lack of chip and PIN payments.
Chipping Away at Chip and PIN
Swipe-and-sign will have dwindled significantly by the end of 2015 and the prevalence of technologies like chip and PIN will send merchants down an irreversible path to next-generation payment platforms.
The largest penalty for not achieving compliance will be the liability shift, which assigns responsibility for fraudulent transactions to merchants still running swipe and signature transactions. On the flip side, if the merchant has a chip and PIN terminal and the customer didn’t receive a chip and PIN card from their bank, the bank will be liable. This makes it crucially important that card issuers and merchants migrate together to drive fraud out of the system.
The banks have it easy—all they have to do is issue new cards—but business owners have to plot a course for what hardware they will purchase and which companies they will trust to navigate the complex payments industry to make sure they are EMV-compliant.
The process to become compliant is anything but frictionless for business owners. A significant portion of retailers and restaurateurs will find that their payment provider will be significantly limited in the technologies it supports and will need to find a new provider who can work with modern point-of-sale technologies.
Businesses should also expect to make more of an investment in an EMV-ready POS—but finding the right solution is worth it. A little exploring and a $500-$1,000 investment (a typical magnetic stripe reader costs $100 or so) is worth its weight in gold when you consider the hit you might take if a customer pays for an expensive night out with a fraudulent card.
More Mobile Payments, More Problems
In addition to the chip and PIN debate, what kind of impact will contactless payments have on the industry? Can U.S. retailers get away with ignoring the EMV deadline and bypassing plastic altogether? Consider the pros and cons of the three most high-profile contactless payment options in this space:
Benefit: We know from Apple’s track record its products are safe, easy to use, able to meet demand, and will likely to be the first contactless payment option customers expect their merchants to use.
Challenge: The unique ID Apple Pay creates for each transaction means the customer, and whatever they purchase, are virtually invisible. Business owners will have to work harder to collect the information they need to send personalized marketing messages and create customer profiles.
Benefit: Samsung offers a technology called magnetic secure transmission (MST), which enables magnetic stripe reading so phones can work even in the absence of near field communications (NFC).
Challenge: Samsung Pay will only work on the Samsung Galaxy S6, forcing people to upgrade their phones or not be able to participate.
Benefit: Android Pay will have tokenized card numbers that reduce fraud by generating a one-time transaction number for each sale and will eventually support biometric sensors, like facial or fingerprint recognition.
Challenge: Unlike Apple’s closed ecosystem, the Android community is much larger and much less secure due to the number of independent developers creating apps for the platform.
How Do I Get There From Here?
Unlike Dodd-Frank and other regulatory deadlines that were like waiting for Godot, EMV is a reality, and the deadline is upon us. To ensure ROI and achieve readiness, business owners must consider their path carefully. If they purchase hardware that can process chip-and-signature, but within 18 months the world has migrated to chip and PIN, the effort was wasted. And, what about NFC? With Apple Pay specifically, retailers will need terminals that support chip and PIN as well as NFC technology. Finally, the robustness of hardware matters. If a device supports EMV, but depends on a shaky Bluetooth connection, it might not be the ideal choice for a high-volume restaurant.
While there is no magic bullet, the best course is to watch what choices other companies in your ecosystem make, stay current with any changes in regulation, and choose your point of sale and payment partners wisely. Look for solutions that go beyond the payment equation to make running your business easier and more profitable. Most importantly, never lose sight of the customer experience. Make decisions that will positively impact customer satisfaction and pay attention to their feedback so you can keep them coming back.
The opinions of contributors are their own. Publication of their writing does not imply endorsement by FSR magazine or Journalistic Inc.