U.S. RETAILERS: Why You re Not as Ready as You Think for Today s Retail Payments Migration

Transcription

1 U.S. RETAILERS: Why You re Not as Ready as You Think for Today s Retail Payments Migration By MATTHEW BRIGHT, Chair, NFC Forum Retail SIG and FRANK TEKAMPE, Chair, NFC Forum Payments SIG November, 2015 Copyright 2015 NFC Forum. All Rights Reserved.

2 A rare opportunity It s exceedingly rare for retail technology and rapid change to occupy the same sentence and that is typically for good reason. With margins tight and consumers exposed to more buying choices than ever not only what to buy, but how to buy capital spending in retail technology infrastructure has a lower priority than marketing, promotions, and other activities that get customers in the door and motivate them to spend more. But as the acceleration of technology fundamentally changes so many other parts of our lives, an opportunity exists for retailers to take advantage of these changes to improve their bottom line. Evolving consumer behavior and technology choices, plus increased public awareness of security particularly fraud prevention and data protection make the landscape more complicated. Omnichannel retailers need to take care of their customers seamlessly across online and offline channels. Street vendors and unattended retail channels (such as vending machines) add new complexity to retailer needs and lead to new consumer experiences. How can those needs be met in a way that creates opportunities for both the retailer and the consumer? Battling a $32 billion problem That question has taken on greater urgency lately, as payment security became a top-of-mind issue in the United States following data breaches at several high profile retailers, both online and offline. Credit cards based on magnetic stripe technology are easily cloned and have been used to commit fraudulent purchases instore and online. According to LexisNexis, fraud cost US retailers $32 billion in 2014, a 38% increase over $32 BILLION The EMV liability shift, scheduled to finally come into effect in the United States on October 1, 2015, forces retailers to upgrade their payment infrastructure, particularly POS terminals, or face the prospect of assuming liability for fraudulent transactions. As a result, many large retailers have recently upgraded their infrastructure to support next-generation credit card security technology that has been widely used in other regions for years. However, a survey by the management consulting firm The Strawhecker Group showed that only 27% of merchants in the U.S. were expected to be able to process chip cards by the Oct. 1 deadline. So clearly, many retailers are still weighing their choices. LEXISNEXIS: FRAUD COSTS TO U.S. RETAILERS IN

3 In making this transition, retailers have two options: 1. Some payment terminals are designed to support only EMV chip technology, a contact-based system where a chip-based plastic card is inserted into a slot to complete a secured transaction. 2. Other equipment supports both chip technology and contactless NFC technology, which enables payment (and more) with the touch of a contactless credential to the payment terminal. While originally designed to support plastic cards, enabling a fast, contactless checkout for small transactions, this feature is increasingly in demand based on mobile payments powered via NFC-enabled smartphones. Caught between risks and opportunities, many retailers, large and small, have yet to decide about the future of their payment systems. In making that decision, retailers should keep in mind two things. First, the payment process is one of the final consumer touchpoints prior to use of the purchased product. Today, the process has become more complex, often combining the collection of loyalty account data, redemption of coupons and other promotional offers, and finally, a financial transaction. Second, more and more consumers are choosing to pay with their smartphones. According to a forecast by emarketer, mobile payments will triple in the U.S. by That trend will only continue. What would it take to transform a mandated infrastructure expenditure into a productive investment that boosts security while simultaneously enabling a new kind of digital consumer engagement? How should retailers assess their readiness for today s simultaneous shifts from fraud-prone to secure payment technology and from physical cards to mobile smartphone-based payments? Understand your risks and opportunities In order to answer these questions, retailers can start by assessing their currently available infrastructure. Retailers generally fall into one of four categories: 1. Retailers who have not yet updated their terminals and continue to rely on magnetic stripe reads. These retailers are the most vulnerable to fraud, particularly in the United States, following the 2015 EMV liability shift. By accepting only magnetic stripe cards, retailers expose themselves to unexpected costs that could make the difference between profit and loss. These retailers urgently need to upgrade their POS terminals to accept next-generation payment options, and their upgraded hardware should enable both EMV chip and NFC contactless technology. What would it take to transform a mandated infrastructure expenditure into a productive investment that boosts security while simultaneously enabling a new kind of digital consumer engagement? 3

4 2. Retailers with upgraded terminals that support EMV chip cards but not NFC. These retailers are also at risk because, while they may be able to accept freshly issued contact-based EMV chip cards and avoid the liability shift, these same retailers are not in a position to accept NFC payments when a customer presents a smartphone to use as payment. This matters because, as mobile-first consumers come to expect to be able to pay with their phones, a lack of support for NFC payments could result in lost revenue and more importantly lost consumer loyalty. Fortunately, NFC functionality is available at a minimal additional cost to standard chiponly readers. For large and midsized businesses, leading payment terminal manufacturers offer a wide range of NFC-capable products. For example, one popular US-based payment processor offers an EMV chip + NFC capable terminal for just $49. Others offer the terminal for no additional cost as a part of a turnkey payment processing solution. Contact the entity that provided your payment terminal to learn your options for upgrading to an NFC contactless-capable terminal. By upgrading to accept NFC payments, you ll be able to accept smartphone payments from consumers using Apple Pay, Android Pay, Samsung Pay, and others. 3. Retailers with upgraded EMV chip and NFC capable terminals who are using only magnetic stripe and/or EMV chip features. These retailers have made a wise investment and are in an excellent position to activate NFC payments with no additional equipment purchases as soon as it makes sense for their business. Fresh studies have verified that mobilefirst consumers are excited about paying with their smartphones, and recent news coverage has highlighted the spending habits of consumers who prefer to shop at retailers who enable smartphone-based NFC payments. These retailers should consider activating and promoting their NFC payment capability as soon as practical. For information about how to activate NFC payments on your upgraded hardware, we recommend contacting the entity that provided the payment terminal to you, whether that is a bank, a terminal manufacturer, or another company. 4. Retailers with installed EMV chip and NFC capable terminals who are already accepting Apple Pay, Android Pay (formerly Google Wallet), and other mobile payments. These retailers are in the best position to meet the needs of today s increasingly mobile consumers because they are already capable of accepting secure mobile payments in addition to standard chip-based credit cards. Consumers who shop at these retailers can take advantage of fast, simple, secure payments while retailers can enhance personalized marketing through loyalty programs and offer redemption as a newly integral part of the payment experience. 4

5 ARE YOU PREPARED TO MAKE THE MOST OF THE EMV LIABILITY SHIFT? Is your organization ready for today s simultaneous shifts from fraud-prone to secure payment technology and from plastic cards to mobile smartphone-based payments? See where you fit in the chart below and what actions you can take. CURRENT RETAILER STATUS RISKS & OUTLOOK RECOMMENDED ACTION Retailers with older terminals that accept only magnetic stripe cards High risk of fraud following the EMV liability shift Exposure to unexpected costs that could affect profit and loss Upgrade terminals to accept next-generation payment options Choose an upgraded terminal that enables both EMV chip and NFC contactless technology Retailers with upgraded terminals that support EMV chip cards but not NFC Lower risk of fraud after EMV liability shift Higher risk for lost revenue and loss of loyalty from mobile-first consumers who prefer NFC Add NFC functionality at a minimal additional cost Consult with payment terminal provider to discuss upgrade options Retailers with upgraded EMV chip and NFC-capable terminals who are using only magnetic stripe and/or EMV chip features OFF Lower risk of fraud after EMV liability shift Opportunity to grow business by activating NFC payments with no additional equipment purchases NFC activation can take place whenever retailer is ready Activate and promote your NFC payment acceptance as soon as practical Consult with payment terminal provider to learn more and develop plan Retailers with installed EMV chip and NFC-capable terminals who already accept Apple Pay, Android Pay, and other mobile payments ON Lower risk of fraud after EMV liability shift Greater opportunity to attract mobile-first consumers Greater opportunity to expand personalized marketing through loyalty programs and offer redemption integrated with the payment experience Promote NFC payment capability to attract mobile-first consumers and strengthen loyalty/rewards program nfc-forum.org

6 Now is the time to ensure that you are fully prepared to address both of the payment transitions that are taking place in today s retail environment. By securing your business against fraud and accepting payment from customers in the way they prefer to pay, you can set the stage for success in a mobilefirst, digital-first world. By combining security, bidirectional communication, and a personalized customer experience, NFC technology addresses fundamental security issues while creating exciting new opportunities for retailers. With more than a billion NFC-capable smartphones in the hands of consumers around the world, retailers who implement NFC at the point of sale can take advantage of their investment today. Take the next step Contact the entity that provided your payment terminal and request an updated payment terminal that supports EMV chip and NFC contactless technology. Due to the strong consumer interest in NFC payments, expect your bank, payment processor, or terminal hardware vendor to fully understand your needs. Want to play a role in setting the future of NFC technology? Join the NFC Forum, the world s resource for NFC standards, certification, and promotion. We look forward to working with you. 6