Merchants continue to resist migration

Although networks, issuers, and acquirers are making strides in the switch to EMV, a significant number of retailers are resistant to making the required upgrades to their point-of-sale hardware. During a recent RAMP Mobile Retail Services conference, a panel of major retailers, a processor acquirer, and a merchant association executive collectively criticized EMV mandates.

Visa, MasterCard, American Express, and Discover Financial Services continue to hold fast to the October 2015 deadline for merchants to have the technology in place to handle EMV payments (fuel merchants have an additional two years). Failure to upgrade their hardware will result in an increased fraud liability burden for merchants.

Although it’s well known that the U.S. EMV migration is coming about much later than other countries, many do not see this as a negative. In fact, they see it as quite the opposite, as it allows us in the U.S. to learn from the experiences of other countries, potentially easing the transition here.

One of the biggest complaints merchants make is in regard to the technology itself. Many are concerned that by the time they complete the switch to EMV, a new upgrade will be required, leaving them constantly behind the curve.

For example, Murphy Oil has 16,000 gas pumps to convert for EMV compliance. An upgrade of that magnitude is anticipated to cost the company millions of dollars. That, combined with the potential risk of the technology becoming obsolete by the time the switch is completed, has led Murphy Oil to indicate they may not make the switch to EMV at all.

According to the panel, another merchant concern centers on the ongoing chip-and-PIN vs. chip-and-signature debate. With a number of card issuers choosing not to require the use of a PIN to add security to EMV-chip card payments, some merchants are concerned about the level of fraud protection the switch will actually offer. There is also some merchant unease about EMV’s failure to address the shift in fraud to card-not-present transactions.

Also discussed at the conference is the general lack of awareness about EMV among smaller merchants and the potential challenges this will pose to the success of the U.S. migration. The panel also broached the subject of EMV terminals and security. The group agreed that a security standard must be established for the entire merchant community, not only for card networks and financial institutions.

Members of the panel conceded that although a number of merchants are unlikely to fully adopt EMV until the last minute, many merchants are taking the necessary steps toward meeting the requirements.

Last fall, a crowd of reporters gathered at the Tim Hortons at Bay and Wellesley to watch the Olympic triathlete Simon Whitfield buy a cup of coffee with his BlackBerry. He tapped his phone against a payment terminal, and commerce occurred invisibly. “Mobile payments have arrived!” declared a VP from Rogers. The company had orchestrated the event to unveil Suretap, a service that, in partnership with CIBC, allows customers to use phones to wirelessly pay for stuff.

Suretap was then just a pilot project, with a somewhat limited scope—only for CIBC account holders, only for people with Rogers wireless service, only compatible with BlackBerry phones and restricted to transactions of $50 or less. By the spring, fewer than 10,000 Canadians had given it a try. But leaders in telecommunications anticipate a rapid, widescale embrace of wireless payments, resulting in phones that act as full-service digital wallets that store everything—credit cards, debit cards, TTC passes, government-issued ID, gift cards and library cards. In a recent survey of bankers and retailers, 80 per cent said they expect the digital wallet to go mainstream in the next few years.

At a daylong financial technology conference at the Toronto Board of Trade in late March, representatives from Samsung, Visa, Rogers and Interac gathered to map out this bold new future, salivating over its possibilities. One Telus executive on a panel at the conference called it the Holy Grail of 21st-century commerce. Bell, Telus and Rogers are so optimistic about this business that they have put aside their differences and teamed up to form EnStream, a system that will enable banks to issue virtual credit cards onto our smartphones.

Pawel Chrobok, EnStream’s director of business development, predicts that with a single tap at checkout, all transactions will occur simultaneously: the customer will make a purchase that will be charged to a credit card or direct to a bank account, be credited the value of digital coupons or gift cards stored on the phone, earn Air Miles and receive a digital receipt. The prospect delights retailers because lines in stores will move quicker and more people will buy more things. The banks will be happy because they’ll issue tons of new cards, all at a fee. The phone companies love that they’ll get to charge banks for access to the phone owner’s SIM card.

CIBC has spent roughly $25 million supporting the development of a technology called Near Field Communication. It’s a chip that now comes with new models of BlackBerry and Android phones, and it lets the user make secure transactions when placed within a few centimetres of an NFC-compatible terminal, thousands of which have been installed in Canadian stores—at great expense to card companies, banks and merchants. Any machine that accepts a tap payment from a credit card will also take NFC transactions from a smartphone. (Rumour has it the iPhone 6 series, expected out in 2014, will include an NFC chip, lending hope to frustrated Apple fans who dubbed the technology “Never Fucking Coming.”)

Our infrastructure for smartphone payment has quickly become so robust that an international study conducted by Master-Card ranked Canada the number two most “mobile-payment ready” nation in the world, just behind Singapore and just ahead of the United States. The technology is here, lying dormant. Do we have the will to use it? A recent financial industry research paper applauded Canada’s technological readiness for mobile payments, but added this caveat: “For Canadians, the benefits are not fully understood.”Click on their website www.ecived.com/en for more information.