challenges and opportunities for the...

Avoiding Fraud / 1

EMVChallenges and opportunities for the channel

Challenges and Opportunities for the Channel / 2

CONTENTS

Overview ............................................................................................................................ 3

Qualify Your EMV Opportunity ....................................................................................... 4

Choose A Path To EMV Execution ................................................................................ 5

Prepare Your Customers for Changes At The Checkout .......................................... 6

Look Beyond October ..................................................................................................... 8

About Vantiv Integrated Payments ............................................................................... 9

References ......................................................................................................................... 9


OVERVIEW

With the passing of the October 2015 liability shift, small-to-midsized merchants have been flooded with misinformation about what EMV is and how it will impact the payment process. It’s a prime opportunity for solutions providers to reaffirm their value proposition—provided they’re ready to execute against an EMV strategy.

By most accounts, your small merchant customers are likely well behind schedule in their ability to accept chip cards and avoid liability for certain fraud chargebacks. A Q1 2015 survey conducted by American Express revealed that while 67 percent of small merchants said fraud prevention is very important to their business, 38 percent said they either don’t plan to upgrade their POS systems to support EMV standards or that they’re still unsure whether they will upgrade.1 A March survey of more than 990 independent business owners painted an even more dramatic picture. A full 71 percent of respondents to that survey were

unaware of the EMV liability shift, and 81 percent answered “no” when asked if they’ve upgraded their POS systems or terminals to support EMV.2 In that survey, only 29 percent of respondents said “yes” when asked if they were aware that by October 2015, Visa and MasterCard will shift the liability for counterfeit card fraud to the least secure party in the transaction. For merchants, that equates to a high likelihood of being held responsible for credit card fraud if they do not have an EMV-compliant terminal.

This decidedly laggard approach to EMV readiness spells opportunity for the channel. Importantly, that opportunity doesn’t manifest itself by simply rushing EMV to market. In fact, doing so can prove detrimental to your merchants and their customers. In this paper, we’ll address how POS and payment processing solutions providers can leverage EMV and payment security expertise to the benefit of their merchants and their the bottom lines.

QUALIFY YOUR EMV OPPORTUNITY

Despite the fear, uncertainty, and doubt perpetuated surrounding the liability shift, EMV isn’t a must-do mandate. It’s simply a transfer of the risk assumed by merchants who chance the acceptance of fraudulent card-present payments in non-EMV payment environments. For some merchants, that liability creates an urgent need for risk mitigation. For others, the expense associated with accommodating EMV is far greater than the financial risk posed by fraud. But all merchants—even small independents with relatively low average ticket sales—face reputational risk in the event their payment systems are associated with counterfeit card fraud. For POS and payment processing VARs, dealers, ISVs, and developers, the key to assessing the business opportunity EMV presents is assessing your merchant portfolio’s risk. While there are a host of factors that play into creating a merchant’s risk tolerance profile, perhaps the two most important are:

• Your customer’s retail segment. Criminals who commit counterfeit card fraud typically focus on the purchase of “fenceable” goods (merchandise that can be purchased fraudulently and then turned easily for a healthy profit on the black market), or merchandise that can easily be converted to cash, such as gift cards. If high-end boutiques, grocers, and drug stores are among your merchant clientele, your mastery of EMV is prerequisite to meeting—and monetizing—customer expectations. If bars, restaurants, hotels and other hospitality establishments are your customers, the presentation and acceptance of EMV cards brings with it another challenge that merchants will need solution provider assistance to solve. The EMV transaction process is designed to ensure the payment card doesn’t leave the consumer’s hands. Thus, the standard procedure for opening and closing bar

tabs, processing tableside dining payments, and handling hotel pre-authorizations will change. Merchants will look to their local solutions providers for assistance and best-practice advice for the management of changes to the flow of their transactions. Solutions providers, in turn, should work closely with their processors or acquirers to configure the least disruptive approach to transacting in the EMV environment.

• Your customer’s chargeback history. Historical data is often the most irrefutable proof of the need for change. Regardless of the verticals in which your merchant customers do business, their historical chargeback data should play into their sense of EMV urgency, and in turn, your EMV opportunity. With that said, even the smallest merchant faces some degree of risk after the October 15, 2005 deadline. In effect, that means enabling EMV is a when, not if proposition, taking into account risk profile as well as impact to business and operational processes. For efficiency’s sake, retail solutions providers are wise to focus their EMV efforts on merchants with historically high levels of chargebacks and fraudulent transactions in the near-term. That merchant-specific data is readily accessible to dealers, VARs, and ISVs through their payment processing partners.

It’s important for solutions providers to dispel the notion that migration to EMV is a payment security cure-all, and it’s equally important to take a pragmatic approach to the sale and implementation of EMV-ready payment environments. EMV is one piece of a three-part payments security foundation that includes point-to-point encryption and tokenization. Following a logical approach to merchant risk assessment will help solutions providers prioritize the attention—and the holistic payment security technologies—applied to specific merchant customers.

CHOOSE A PATH TO EMV EXECUTION

Just as small merchants are lagging their larger counterparts on the EMV readiness continuum, many solutions providers and ISVs have yet to develop a concerted and market-ready EMV strategy. Having identified the appetite for EMV within your merchant portfolio, it’s important to present a proven and executable EMV strategy within the integrated payments experience that merchants desire.

In an incredibly diverse payments environment, going it alone is a non-starter for most solutions providers. Vantiv Integrated Payments, for instance, works with more than 700 ISVs and more than 2,000 VARS. Each one is unique, and every combination of terminal device, POS software, and payment gateway requires a separate EMV certification (for more detail on the complexities associated with self-certified EMV solutions, download the Vantiv Integrated Payments paper Integrating payments with EMV: Choosing the right path forward.)

EMV implementation experience garnered in Canada demonstrates just how resource-intensive self-certification can be. There, the certification and access costs associated with self-certification typically ranged from $10,000 to $50,000, before accounting for the labor costs associated with development, which is typically a six-month minimum engagement. But the cost of certification doesn’t end there—each time the POS an/or payment application is upgraded, changed, or integrated, the ISV or solution provider is subject to recertification, potentially resulting in similar expenses. Consider an ISV that offers two different terminal devices and works with five different processors; that solution provider is effectively subject to ten certifications multiplied by four major card brands, for a total of 40 certifications.

As a channel-focused payment processing solutions vendor, Vantiv Integrated Payments offers a more market-ready and less cost-intensive approach to EMV enablement. Vantiv Integrated Payment’s “semi-integrated” EMV-ready solution handles point-to-point encryption and tokenization—two de facto standard payment security measures—as well as EMV certification, on multiple EMV L1/L2 certified devices. It’s our intent to take the prohibitive burden of EMV certification on ourselves, allowing our VAR, dealer, and ISV partners to offer their customers EMV-ready payment environments that maintain the integrated POS experience they seek.

In effect, we’re taking the burden of EMV Level 3 certification—which applies to payment applications and all the systems they’re connected to—off of the solution provider’s back. This is a cost-effective approach to moving from EMV-ready (having the device infrastructure that meets EMV Level 1 and Level 2 requirements in place) to EMV-enabled (having a certified solution, capable of processing chip on chip transactions).

PREPARE YOUR CUSTOMERS FOR CHANGES AT THE CHECKOUT

As U.S. solutions providers help their merchants make the transition to EMV, they’re fortunate to have the benefit of precedents set in Europe and Canada, where the standard has been in play for several years. One of the most important lessons learned by those who have already forged ahead on the path to EMV is to embrace the change. EMV acceptance results in a significantly different transaction experience for merchant associates and consumers alike. For instance, swiping the card before the transaction is not an option in the EMV environment, which requires the transaction to be totaled before the payment


card is inserted. When a consumer pays with an EMV card at an EMV-enabled terminal, the terminal will prompt the consumer to insert the card into a slot. On some devices, the slot is vertically oriented. On some, it’s horizontal. Some devices grab and hold the card, while some allow a loose insertion. In any event, the card must remain in the slot until the chip in the card initiates data communication with the reader, at which time the consumer is prompted to remove the card. This seemingly small change requires a significant adjustment on the part of merchant associates and consumers.

While the firmest revenue opportunity presented to POS and payment processing dealers comes by way of EMV-capable terminal and payment application sales—it’s likely that merchants will need to upgrade both their point-of-entry device and their payment application—the sale of those upgrades is not where your opportunity ends.

Experience has demonstrated that the merchants who struggle most with the implementation of EMV are those who try to make EMV transactions “feel” like traditional mag stripe transactions by attempting to customize screen flows, or by manipulating the hardware device to work as it does in a mag stripe environment. Resisting the operational change in this manner typically makes the process slower and more cumbersome. Solutions providers have a unique opportunity to add potentially billable value through training on how EMV impacts the in-store transaction process, and how the merchant should embrace that change in their payment acceptance environment. We’ve found that merchant associate education is the single most important key to the success of an EMV rollout. Similar to the adoption of Apple Pay, a smooth transaction flow is incumbent on the associate’s recognition of the tender type and their ability to work through the process with consumers, especially in the early days of EMV adoption. The solution provider can seize a unique opportunity here to architect and train on this operational change, which will be unique from one merchant’s payment environment to the next.

Along with this opportunity comes a healthy dose of responsible restraint on the part of VARs, ISVs, and dealers. Rushing a solution to market in order to meet hasty

demand from merchants that don’t fully understand what they’re getting into is often the main ingredient in a recipe for implementation disaster. If the terminal configuration is not proper—if it doesn’t address how debit transactions will work in the EMV environment, for example—the merchant will experience interoperability challenges that result in a poor cardholder experience. If the terminal is not optimized, transaction speed will be compromised. Worse, it might not work at all. Rushing a solution to market to meet misinformed demand is a common pitfall in these early days of EMV. Solutions providers should work closely with their payment services providers to ensure they’re thoroughly and holistically considering their merchant EMV implementations.

LOOK BEYOND OCTOBER

With the passing of the liability shift, EMV has taken center stage in the payment processing space. But, the channel sales opportunity created by the new standard has long legs. EMV standards will most certainly evolve, keeping developers and ISVs busy for years to come. As POS and payment applications advance, recertification will be necessary. Kernels will expire over time. Thus, solutions providers need to look beyond October as they develop their solutions and go-to-market strategies.

In the near term, solutions providers should look for opportunities to leverage the core EMV payment infrastructure—the re-terminalization and POS upgrade requirements that the standard brings—to set groundwork for their merchants’ future payment acceptance initiatives. The EMV standard lays solid footing for secure mobile payments, creating an opportunity for solutions providers to introduce mobile wallet solutions such as Apple Pay, Android Pay, as well as alternative tenders such as ACH and gift cards. Solutions providers are wise to recognize service and sales opportunities that complement the significant change EMV brings to the card-present POS environment.

Additionally, while the EMV standard isn’t designed to affect the card-not-present (CNP) payments environment, it’s proven to have CNP implications. Merchants in Europe


and Canada, for example, experienced a significant increase in CNP fraud after EMV was implemented. As security tightens around the physical POS, criminals follow the path of least resistance, which leads them to ecommerce channels. For the growing number of solutions providers who offer cross-channel commerce solutions, the move to EMV poses an opportunity to focus on the development and sale of fraud security and payment validation solutions—such as tokenization, device fingerprinting, authentication, and transaction risk scoring—for CNP environments.

The urgent attention being paid to the EMV standard puts retail systems solutions providers in a unique position to demonstrate and capitalize on their payment security expertise. Those who understand that EMV is one piece of a three-part payments security foundation—point-to-point encryption and tokenization being the other two—are poised to reap the reward of value reaffirmation as merchants seek to secure their POS environments. Working closely with your merchant services partner is the most direct and efficient way to ensure your customers are both ready for the transition to EMV and to ensure the holistic security of their payment environments.

ABOUT VANTIV

Vantiv is one of the top award-winning payment processing companies in North America. Every product, service and technology we invest in is tailor-made to complement the solutions you offer. Together, we’re able to generate new business, drive long-term customer loyalty and propel success—for you and your merchants. Learn more about our secure solutions at vantiv.com

CONTACT

Denver, CO Durango, CO 4610 South Ulster St. 150 Mercury Village Drive Suite #600 Durango, CO 81301 Denver, CO 80237

800.846.4472 [email protected] [email protected]

1 American Express, February 24, 2015, http://about.americanexpress.com/news/pr/2015/amex-helps-u-s-small-merchants-fight-fraud.aspx

2 More Than 70% of Small Merchants Are Unaware of EMV Liability Shift, Survey Finds March 9, 2015, http://digitaltransactions.net/news/story/More-Than-70_-of-Small-Merchants-Are-Unaware-of-EMV-Liability-Shift_-Survey-Finds

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