The recent Target data breach, together with a series of other events in recent years, have moved Europay, MasterCard, Visa (EMV) adoption in the U.S. from a possibility to a near reality. It is quite commendable how quickly several key retailers, processors and banks have stepped up to the plate and accelerated their investment in EMV in the past few months since the breach became public.
Yet with that said, we insiders across the electronics payment chain, believe that actual EMV adoption and changes in the U.S. will still progress rather slowly over the next few years due to a collective, overwhelming fear of high costs associated with swapping magnetic stripe credit/debit cards for chip/PIN or chip/signature cards as well as the daunting and complicated technological and regulatory changes that come along with switching current POS hardware over to EMV-certified devices. This is true not only for retailers, but also, maybe mainly for unmanned POS, such as gas pumps across the U.S.
It might have been easier to gradually migrate over to EMV, however, the looming October2015 Liability Shift makes the time frames much shorter, and the hope of many of the payments market players that this shift would be pushed off until 2017, looks less plausible due to the fire that has been lit by the card schemes since said data breaches were exposed.
Merchants are priority number one
Over the next one to two years, every player across the payments value chain, from acquirers to ISOs to processors, will first and foremost need to focus on collaborating to create a holistic solution that can ease the pain for merchants as they go through this transition. Can all of us ensure a complete and seamless migration for merchants by 2017 or before? I’m not sure. In any event this will be a costly and painful process.
In addition, since U.S. merchants have invested decades as well as billions of dollars into POS systems, even if everyone across the payments value chain banned together and worked around the clock, they still could not ensure a 100% EMV transition for their merchants by 2017.
mPOS is attainable
However, what is more attainable and realistic is if the industry focuses on supporting merchants through the migration in a particular vertical such as mPOS. Although global mPOS terminal adoption is expected to increase to 38 million by 2017, the reality is until now, mPOS proximity payments made up just 0.01% of total retail POS volume in 2012 and in 2013, there were less than 10 million mPOS devices rolled out globally.
In other words, mPOS adoption – especially here in the U.S. – hasn’t reached mass-market level yet, and as such the vertical is still manageable enough that collectively those of us in the payments industry who have the expertise and capabilities, have plenty of time to help merchants tackle and overcome EMV-related hurdles in the next two to three years, coinciding with the deadline for the liability shift.
There are two categories of mPOS merchants that will need support during the transition. The first category is those current players that already utilize mPOS products, yet do not have devices that are EMV-certified. The second category is brand new players – both enterprises and SMEs – that are on the cusp of purchasing and beginning to leverage the technology.
The key pain points that will need to be addressed and solved is what I like to refer to as the Two Cs – cost and compliance. Here is where I believe: many of the new, innovative technology companies in the U.S. industry, including technology-companies-turned-acquirers and mPOS manufacturers, will play a key role in ensuring merchants experience a smooth and cost-effective transition.
Merchants that begin the EMV/mPOS migration process in the U.S. should consider working with the new breed of technology acquirers. Even more specifically, merchants should collaborate with those that have real-life experience in rolling out EMV-certified mPOS devices. There are now a handful of high-tech acquiring banks that have successfully brought to market EMV-certified devices that are now being used by merchants globally, especially in Europe.
Why work with these guys? It’s simple and logical
Experienced high-tech acquirers are immersed in certifying and implementing related technologies, such as EMV and PCI-compliance. It is second-nature to them and therefore what can be a grueling process for others, is natural and seamless for these players. As such, merchants who work with them will have an easier experience during the technological transition. As Europe has adopted EMV as a mandatory standard for a few years now, the logical option would be to work with providers that have gained experience working with EMV mPOS in Europe.
In addition, it is even more powerful if merchants work with these acquirers that have already successfully rolled out EMV-certified mPOS devices to the market because they then have a deeper understanding of associated card scheme rules and regulations and can therefore also ensure new ‘EMV/mPOS’ merchants’ success in adhering and being compliant with card scheme rules associated with mPOS implementation.
Commoditization leads to competitive pricing
As we all know, the biggest concern merchants have is the hefty financial investment needed to swap over to EMV-certified devices and mPOS is obviously no exception. Especially since the Target breach, we are suddenly hearing about a whole new crop of mPOS hardware manufacturers that specialize in EMV-certification and my guess we will continue to see many more hit the market fairly soon.
This is actually a very good thing for merchants that need to turn over to EMV because the reality is – as all commodity industries – there will most likely be a saturation in the market and as such, a competitive price war will begin. When this happens, EMV-certified mPOS device prices will significantly drop and merchants will then be able to purchase them at very reasonable prices. My prediction? This will happen pretty quickly, within the next two to three years.
Bottom line, as long as there is synergy and collaboration across the payments value chain, from traditional banks to processors to technology innovators, merchants can rest easy that the EMV/mPOS transition will not be as cumbersome as they originally expected.
Benny Nachman is founder and CEO of Credorax.