Over the past few years the payments industry has been on a fast track of innovation, but it wasn’t always that way. During the late ‘90s and early 2000s, merchants relied on a dial-up countertop terminal to accept credit cards and a cash drawer for cash and checks. The standards for payment equipment were fairly low and the players in the industry weren’t quick to develop new and improv-ed options.
Things are much different now, with the focus shifting to consumer convenience and business efficiencies. Today, merchants are using integrated point-of-sale systems, tablets, and phones to accept credit cards. Consumers are using their phones to make purchases and many businesses have gone cashless to increase efficiencies and reduce the expense of managing cash.
What changed and why? To begin with, there are new players in the game introducing products that help businesses drive new revenue, reduce expense, and provide more secure means for processing electronic payments. These companies spotted the lack of forward thinking and seized the opportunity to enter the payments space and shake things up a bit. Companies like Google, Apple, Square, and many others have joined the payments industry to see how they can make an impact. These new entrants to the market have brought much needed pressure to design new products and solutions that help the merchant succeed while keeping cardholder data secure. The United States is also adopting EMV technology (EMV stands for Europay, MasterCard, and Visa) in an effort to decrease the amount of card-present counterfeit fraud. There is a very bright future for payments, indeed.
AN APP FOR THAT
At the beginning of this year, I discovered that one of my favorite local restaurants has a mobile app. I was thrilled to see what it was all about so I quickly downloaded it. The app allowed me to place my lunch order at my office, go pick up my order (without waiting in line), and pay without pulling my phone or wallet out of my pocket. The convenience enabled me to enjoy a more convenient and pleasurable experience at a place that is normally very hectic at the lunch hour. The restaurant benefited because I now visit them more often, and since my payments are digitally accepted through the phone’s app, their staff now has extra time to serve additional customers.
Just a few months ago, when the pollen count skyrocketed in Georgia, I began visiting the car wash much more frequently. During one visit, I paid at the kiosk before I entered the tunnel, left my car to the attendant, and walked inside to wait. As I was waiting, an employee asked me if I had heard about the unlimited car wash special. For $39.99 per month, I could visit the car wash as many times as I wanted. But I had just paid $18.99 and I really didn’t want to go through the hassle of setting up a recurring plan. The employee could sense my hesitation and was already prepared. She told me she could refund today’s wash, charge me the $39.99 today and each month going forward, and all I had to do was sign. Even though I had swiped my card outside, the employee was able to void that transaction and rerun it. There was no need to take out my card again since it was processed on the same point-of-sale gateway. The takeaway is that I might not have signed up for this monthly subscription if the car wash hadn’t made it so easy for me to say yes.
Implementing systems like these to support newer methods for transacting come at a cost. However, when weighing the pros and cons, you may find a solution that will really help your business grow. In the first example, the restaurant most likely brings in more customers because of their new technology, and they are also most likely able to handle the influx of customers with the same amount of staff on hand, due to the increased efficiency. In my second example, the car wash now receives $39.99 from me each month whether I visit or not, and future staff interactions with me will be minimized because they offered, and I accepted, their recurring billing option.
Most of this newer technology not only offers added convenience to the customer experience, but additional security behind the transaction. Most have seen commercials recently for ApplePay or maybe even heard about the new Android Pay that was just announced by Google. Many of the newer smartphones function like payment cards, which eliminates the need for customers to carry their wallets when they shop. These phones have a secure element within them, just like chip-enabled credit cards. Merchants who are equipped to accept these payment types are EMV ready.
EMV is used synonymously with chip technology or chip-enabled cards. Most other countries outside the United States have had chip technology implemented for many years and it has been proven to reduce card-present counterfeit fraud. The EMV migration in the United States is currently underway. Banks have been and will continue issuing more and more chip cards and businesses have already begun upgrading their equipment to accept these chip-enabled cards. All of this effort is designed to minimize fraud from counterfeit cards.
It is fairly easy to collect data from the magstripe on traditional cards. Traditional magstripe cards can be mimicked and recreated rather easily, as well. The “fraudster’s” practice is to get hotel room keys or old gift cards and embed stolen cardholder data on them to make a swiped purchase at a retail store. Creating a “fake” or counterfeit chip-enabled card is possible but more difficult. Lastly, during the magstripe transaction, the cardholder data is usually sent “in the clear” which allows fraudsters to intercept that transaction and steal the cardholder data. When processing a chip-enabled card, the entire transaction process is much more secure. A one-time-use code is generated by the card in order to process successfully.
Today, the issuer bears the cost of any counterfeit card fraud, but that will soon change in October when the “liability shift” occurs. The phrase “liability shift” is commonly used when the topic of EMV is discussed, but is not always communicated accurately. Visa states that, “On October 1, 2015 in-store counterfeit fraud liability will shift to the party — either the issuing financial institution or the merchant — that has not adopted chip technology.” A great resource for understanding the different rules and scenarios can be found on Visa’s website: http://usa.visa.com/merchants/grow-your-business/payment-technologies/credit-card-chip/liability-shift.jsp.
There are a couple things to be aware of when contemplating EMV migration strategies:
• PIN pads are not required for EMV. There are four cardholder verification methods (CVMs) available. Online PIN, Offline PIN, Signature, and No CVM. Due to the desire to migrate to EMV technology quicker, as of this writing, card issuers have decided not to implement PIN as the only CVM in the event a merchant does not have a PIN pad.
• The liability shift only impacts fraud from card-present counterfeit card transactions. Chargebacks received today for various reasons will not decrease due to the EMV standards and/or the liability shift.
• EMV-ready equipment options are limited. As banks begin issuing more chip-enabled cards, more EMV-ready equipment will be manufactured and more options will be available.
• The technology used in EMV-ready equipment is much more advanced. Plan on spending more than the equipment options available today.
• There’s no need to feel “forced” to migrate to EMV-ready equipment. Unfortunately there are those who will use unscrupulous sales tactics in connection with the EMV liability shift to scare merchants to upgrade today. Do your research and do not make a hasty decision.
• Training may be appropriate to educate employees about processing chip-enabled cards. For example, to process a contact chip card, the card must be inserted, or “dipped” into a slot. Once dipped, the card remains in place for a few seconds while the card authenticates. This could impact the flow of your business as well.
• Think about future-proofing your business as long as your customer base and business model allow for it. In other words, when deciding on equipment, you’ll want to be equipped with the most recent technology that can process contact, contactless, and NFC transactions.
There is a lot to consider when migrating to EMV, so hopefully this article helps break down the information in an easy to digest format. We’ll continue to see more adoption of EMV and mobile payment technology from banks, issuers, merchants, and consumers. Think of innovative ways that could attract new customers or drive repeat business. Consumers are more attracted to businesses that support these new payment technologies and the car wash industry as a whole has done an excellent job keeping up with these new options, which will continue to grow. Treat credit card processing as a value-add service, rather than a commodity. Maybe use the EMV migration as an opportunity to incorporate new payment technology that will bring more convenience for your customers while increasing your operating efficiency.
Judson Preuss is the director of product management at Priority Payment Systems. Since its inception in 2005, the company has established itself as a leading innovator in the electronic payment processing industry and is a high-value partner for independent sales organizations (ISOs), banks and financial institutions, enterprise organizations, and referral partnerships nationwide. Priority Payment Systems unique transaction platform supports both business-to-consumer and business-to-business transactions. The Nilson Rankings places Priority among the top 20 merchant acquirers in the United States by volume, and the Electronic Transaction Association named Priority the ISO of the Year for 2013.