Wednesday Aug 01, 2012

EMV on its way to the US

At a past job I recall slaving away in Mastercard's facility in Purchase, NY testing my implementation of a stored value system called Mondex when the project manager walked in and told me to stop working so hard.  I was completely confused as there were deadlines to meet, but a few days later Mastercard announced is was dumping Mondex in favor of something called EMV.  That was over 15 years ago and EMV has yet to take hold in the US -- but its coming soon.

EMV is simply a standard for payments made using smartcards, which look like standard credit cards but have integrated circuits embedded.  You can think of that chip as a tiny computer that can talk with the POS to perform encryption and authentication tasks to help prevent fraud.  Chip-and-PIN is the UK's implementation of EMV.

Last year Visa announced its intention to transition the US from mag-stripe to EMV cards with a target of October 2015.  Mastercard, Amercian Express, and Discover have also aligned to that target.  This means that retailers need to upgrade their POS hardware to be able to accept contact (insert the chip card into a read) and contactless (wave the card near a reader) cards.  Acquirers must have their software updated by April 2013.

To encourage retailers, the card brands are providing both a carrot and a stick.  When 75% of a retailer's transactions are chip based, it no longer has to annually perform the PCI certification (yeah!).  However, after the deadline acquirers and retailers will take on the liability of non-chip card transactions (boo!).

Contactless chip cards use a technology called NFC to communicate with the reader.  In this case the chip can be embedded in a card or it can also be inside a smartphone.  Therefore, by adopting EMV hardware retailers will also be ready to accept mobile payments like Google Wallet and Isis.  Those payment systems include the added benefit of combining loyalty cards and digital coupons alongside payment data.  We're still waiting to see if Apple includes NFC in its next generation iPhone, but their Passbook concept is a good sign.

Here's some free advice:

  • Discuss EMV with your acquirer (and payment switch vendor) right away so you understand their roadmap.
  • Plan to upgrade your existing payment terminals to meet EMV requirements ASAP.  All the major payment terminal vendors have solutions.  Consider if you need network-addressable terminals (ones connected to your LAN).
  • Consider also participating with Google and Isis in their NFC programs.  They have pilots running in several cities with aggressive expansion plans.
  • Work with your POS vendor to understand any changes required to integrate the new payment terminals, but also to support value-added features like loyalty and digital coupons.
  • Discuss lessons-learned with peers that have already gone through the EMV migration in Europe.

This transition away from mag-stripe cards will not only reduce fraud, but there's an opportunity to use the technology to improve shopping experiences.  There will be pain along the way, but we'll all benefit from this move in the long-run.

Monday Nov 14, 2011

Four Emerging Payment Stories

The world of alternate payments has been moving fast of late.  Innovation in this area will help both consumers and retailers, but probably hurt the banks (at least that's the plan).  Here are four recent news items in this area:

Dwolla, a start-up in Iowa, is trying to make credit cards obsolete.  Twelve guys in Des Moines are using $1.3M they raised to allow businesses to skip the credit card networks and avoid the fees.  Today they move about $1M a day across their network with an average transaction size of $500. Instead of charging merchants 2.9% plus $.30 per transaction, Dwolla charges a quarter -- yep, that coin featuring George Washington.

Dwolla (Web + Dollar = Dwolla) avoids the credit networks and connects directly to bank accounts using the bank's ACH network.  They are signing up banks and merchants targeting both B2B and C2B as well as P2P payments.  They leverage social networks to notify people they have a money transfer, and also have a mobile app that uses GPS location.

However, all is not rosy.  There have been complaints about unexpected chargebacks and with debit fees being reduced by the big banks, the need is not as pronounced.  The big banks are working on their own network called clearXchange that could provide stiff competition.

VeriFone just bought European payment processor Point for around $1B.  By itself this would not have caught my attention except for the fact that VeriFone also announced the acquisition of GlobalBay earlier this month.  In addition to their core business of selling stand-beside payment terminals, with GlobalBay they get employee-operated mobile selling tools and with Point they get a very big payment processing platform.

MasterCard and Intel announced a partnership around payments, starting with PayPass, MasterCard's new payment technology.  Intel will lend its expertise to add additional levels of security, which seems to be the biggest barrier for consumer adoption.  Everyone is scrambling to get their piece of cash transactions, which still represents 85% of all transactions.

Apple was awarded another mobile payment patent further cementing the rumors that the iPhone 5 will support NFC payments.  As usual, Apple is upsetting the apple cart (sorry) by moving control of key data from the carriers to Apple.  With Apple's vast number of iTunes accounts, they have a ready-made customer base to use the payment infrastructure, which I bet will slowly transition people away from credit cards and toward cheaper ACH.  Gary Schwartz explains the three step process Apple is taking to become a payment processor.

Below is a picture I drew representing payments in the retail industry. There's certainly a lot of innovation happening.


David Dorf, Sr Director Technology Strategy for Oracle Retail, shares news and ideas about the retail industry with a focus on innovation and emerging technologies.

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