April 1 will mark six months since the EMV liability shift took effect, but the rule change has done little to simplify the crowded, complicated payments sector. However, Eric Shea, Partner at Kurt Salmon Digital, believes card-based contactless payments could bring a bit of order to the chaos.
This payment method, which leverages the increasing number of payment cards equipped with chip technology interacting with NFC-capable point-of-sale hardware, offers a number of benefits to retailers and consumers. These include:
• Faster checkout speeds: A tap or a wave of a chip-enabled card provides a quicker transaction, particularly compared to slower EMV chip-and-PIN or chip-and-signature methods;
• Potential increase in impulse sales: Faster, more convenient POS transactions could encourage more spur-of-the-moment checkout lane purchases; and
• Greater appeal to Millennial shoppers.
At the moment, however, the payments arena remains “confusing and frustrating” for both consumers and retailers, said Shea. “Just getting consumers up to speed and educated has been challenging,” he said. These learning processes will be long-term, since many retailers still don’t have EMV-capable hardware installed: “We’re only seeing 30% to 50% adoption of the technology,” said Shea. “It’s started in the major chains and is rolling down to smaller retailers.”
As for payments linked to mobile phones, this space remains “fragmented and reliant on specific hardware,” said Shea. “Google Pay, Apple Pay and Samsung each have proprietary ways to connect, and a group of retailers that includes Walmart and Target has its own standard, the CurrentC solution.”
The fragmentation is likely to continue until a clear set of winners emerge. Multiple companies continue to vie for a foothold in payments because of the enormous upside potential. “All the vendors want to ‘own’ the transaction, because anyone who wins will reap a fortune,” said Shea. “When you can be the middleman and collect a toll, it’s great from a revenue perspective.”
One solution to the current fragmentation would be the development of payment industry standards to promote greater interoperability. However, standards that would simplify checkout processes (and retail decision-making about POS solutions) are still a distant goal, according to Shea. “Will there be an alliance of handset developers, operating system owners like Apple and Google, all coming together to build a standard where phones can talk to POS terminals?” Shea asked. “I hope so, but I don’t see it yet.”
“This space is definitely ripe for some sort of disruption, but it will likely have to also be backed by the banks, card issuers, phone companies and developers,” he added.
Speed And Convenience Will Win The Day
Changing consumer attitudes and expectations about payments will also be important in moving the needle. “Change is coming, but it’s a matter of when it will be easy for the customer,” said Shea. “Once we reach a critical mass, as shoppers’ expectations change around payment, things will change very quickly.”
Faster, simpler payments will bring “major benefits to the customer experience, and would be a boon to retailers, particularly in reaching Millennial shoppers,” said Shea. “There’s potential to see uplift in retail sales, because there might be more impulse spending if it’s easier to check out.”
Contactless Payments Could Bridge The Gap
Shea believes card-based contactless payments could help push the industry toward more interoperable solutions. He noted that many of the EMV-capable POS hardware devices already have NFC capabilities. A Javelin Strategy study forecasts that one third of U.S. retail establishments will accept contactless cards by 2019, and Xavier Giandominici of FIME wrote in January that “It looks like many retailers are going the contactless acceptance route.”
Card-based contactless payments can take advantage of the ongoing spread of chip-enabled cards. As of September 2015, 60% of U.S. cardholders had received these cards from their issuers, according to an Ingenico study titled: The U.S. Chip-onomics: Measuring EMV Adoption and Consumer Perceptions. Since then, the number of chip cards issued has certainly increased.
Card-based contactless payments have rapidly gained popularity in the UK, where they currently account for nearly one in every eight card transactions, Shea noted. In October 2015, 10.3% of all card transactions were made using contactless technology, the first time the 10% milestone was passed, according to the UK Cards Association. In 2015 as a whole, contactless payment spending more than tripled from the previous year, reaching £7.75 billion.
There’s been a “virtuous circle” for these payments in the UK: as more vendors accept them, more consumers find them useful. For example, UK shoppers are using the cards not only in retail locations but also to pay for rides on mass transit: Transport for London reports that more than one million journeys are made each day using contactless payments.
New Security Concerns
Continuing to move forward toward simpler, more secure payments is in everyone’s best interests. While it’s true that multiple players and competing technologies are nothing new in the payments arena, slow progress could leave some retailers more vulnerable to fraud and cybercrime.
When the transition to EMV is complete, cardholders and retailers will enjoy the protection of security features that include chip cards generating dynamic data for each transaction. The chips also make the cards themselves more difficult to physically duplicate than traditional magnetic stripe cards have been.
However, the slow pace of EMV adoption means those outside its protective umbrella are more vulnerable than ever before. According to Business Insider, “Fraud will move to the weakest channel. In 2014, the U.S generated almost half of the world’s total card fraud despite only comprising one-quarter of transactions. That’s because the U.S. had the least secure payment card ecosystem. Once EMV is fully adopted in the U.S., fraud will move yet again, this time to online and mobile channels. In 2014, only 42% of fraud came from digital channels. In 2015, that number grew to 55%, and it’s continuing to expand.”
Another big security gap involves mobile POS technology. These mPOS devices are the least likely to have received EMV upgrades, according to Andrew Molloy, Director of Product at Ingenico Mobile Solutions. These vulnerable devices are used by retailers both large and small, according to a recent Mobile Payments Today article written by Molloy: “While today this segment is largely made up of SMBs using tablet- or smartphone-based solutions (think, PayPal and Square readers), it also includes large merchants using mPOS for in-store activities such as line-busting and for out-of-store activities such as delivery, home services and pop-up stores.”