Security and Convenience: Retailers and Their Customers CAN Have It All
Concerns Over the EMV Conversion Do Not Portend Long Term Challenges and Overshadow Critical Advances in Security and Convenience
Merchants understand that providing customers with as many ways to pay as possible enables sales and improves customer satisfaction, making it a critical business priority. At the same time though, merchants also need to protect themselves from the possibility of fraudulent chargebacks that eat into profits.
Merchants don’t have to choose security or convenience. The payments transformation in the U.S. is one that will play out over the next several years, driven by the dual pressures of security and convenience. The key for merchants is to understand the full context of changes in order to incorporate them into your business strategy and explain them to customers to smooth the way.
Here are a few key observations that can help you make the best decisions for your business and educate your customers about the security and convenience of their payments:
Easing the Pressure
Much has been written about the troubled rollout of chip cards in the U.S., from longer processing times and customer frustration to difficulties merchants are having getting their new POS technology certified. It’s true that there is currently a bottleneck in the EMV conversion process at the merchant acquirer and processor level. Merchants are frustrated by the backlogs, and concerned about chargebacks they might be responsible for in the interim.
But for all the hand-wringing, there is no doubt that these hurdles will get ironed out.
First of all, both MasterCard and Visa are taking steps to smooth the transition, reducing the number of tests required in the certification process to shorten the time it takes to get terminals online. Visa, MasterCard and American Express have also revised their chargeback policies to limit the impact of fraud on merchants during the transition period and launched new software designed to quicken EMV chip transactions. With all those improvements in the works, merchants can assure customers that those couple extra seconds at the register won’t be permanent.
An Inevitable Improvement
More important than the immediate easing of the pressure, though, is the inevitability of EMV’s success. Europe and Canada both converted to EMV years ago and haven’t looked back. Looking at examples in other countries, we can see that after a period of adjustment, everyone – consumers, merchants, issuers – adapts to the new technology. Europeans and Canadians now embrace inserting their chip cards, because they’ve seen major benefits in terms of fraud reduction. In fact, according to the European Central Bank, fraud carried out at POS terminals dropped 24 percent between 2007 and 2011, primarily due to the widespread adoption of EMV.
The U.S. is currently ranked second among twenty countries in terms of experiencing the most credit card fraud – with 46 percent of American credit cardholders having experienced fraud at least once in the last five years – according to a recent global survey from ACI Worldwide and Aite Group.
Assuming the conversion has a similar impact here, this is something that should excite merchants, who benefit from decreased risk of chargebacks, as well as consumers, who can avoid the inconvenience of having their credit cards compromised. Additionally, consumers benefit from catching up to the rest of the world when they travel. Many more terminals in Europe take EMV-enabled chip cards than mag-stripe cards, and the level of acceptance will continue to increase moving forward.
A Strong Foundation
While the transition to the now-familiar chip cards will have major advantages for both merchants and consumers, the opportunity represented by the shift is even broader. What many people don’t realize is that EMV shouldn’t be equated only with the chips themselves. EMV is a security standard that provides an additional layer of security for payments, protecting both consumers and merchants.
While chip cards are the most visible evidence of the EMV standard to date, the infrastructure that is now in place can support new payment “form factors” of the future. Of particular note, EMV enables contactless cards, which allow customers to “tap and go” – and benefit merchants with much faster transaction times. The use of contactless cards has increased dramatically in all the major markets that adopted EMV before the U.S., and we’re already seeing more interest here too.
The Ongoing Security Battle
Aside from enabling convenience improvements like contactless payments, EMV also represents one of the latest advancements in the ongoing fight to reduce the vulnerability of our payment data.
Some mobile payment systems, such as Apple Pay and Android Pay, are using EMV standards, combined with tokenization to enable fast, secure, contactless payments. “Tokens” are credentials sent through a payment channel when you make a purchase that point back to your primary account. Customers’ sensitive account information is stored off-site in a secure environment and replaced with a token at the merchant location. The difference between a token and your actual account information is that if a token is stolen, it’s useless to the thief.
Tokenization, combined with EMV, has the potential to make a huge dent in fraud by protecting payment information and data. While it may not visibly affect your business in the near future, it’s important to be aware of the measures being taken to protect both you and your customers – even when they’re behind the scenes and don’t affect customers in their everyday lives. Start a conversation with your customers – it’s likely that they don’t have any idea of the measures being taken every day to combat fraud on their behalves.
While it may feel to merchants and consumers like the shift to EMV happened all at once, it’s actually part of a much more continuous evolution in payment technology that aims to allow consumers to pay securely in as many ways as possible.
In the past, we encoded (personalized) magnetic stripe cards with static cardholder and issuer data. Now, we’ve added tokens and chip cards with dynamic data to enable those cards to function in the more secure EMV environment and contactless payments to make transactions faster and smoother. While those shifts aren’t even close to complete, we’re also already seeing growing interest in new advances, like biometric technologies like thumbprint-enabled cards.
In the future, I believe that payments will continue to integrate ever more seamlessly into our lives and businesses. However, this shift must occur hand in hand with enhanced security. We can’t sacrifice one for the other, and we don’t have to. It’s a journey that we are going on together – payment technology providers, issuers, processors, merchants, and consumers.
About Steve Montross
Steven Montross has served as CPI Card Group’s President and Chief Executive Officer since January 2009. Prior to joining CPI, Mr. Montross was a founding shareholder and Managing Director of FirstLight Financial Corporation, a business that invests senior debt capital in private-equity owned businesses, from 2007 to 2008. Prior to forming FirstLight, Montross had a 17-year career at General Electric Company, where he held positions of increasing responsibility and leadership within GE’s financial service businesses, including a business that financed private equity-owned enterprises. Mr. Montross holds a Bachelor of Business Administration degree from the University of Michigan and a Masters of Business Administration from the Kellogg School of Management at Northwestern University.
CPI Card Group is a leading provider in payment card production and related services, offering a single source for credit, debit and prepaid debit cards including EMV chip, personalization, instant issuance, fulfillment and mobile payment services.
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