US EMV transition could open door to more NFC mobile payments

Posted: Apr 10, 2015

The clock continues to tick on the EMV liability shift in the U.S.

Merchants have six months left to upgrade their point-of-sale terminals to accept the chip cards banks are issuing to their customers. While the card networks announced the shift in 2012, the transition hasn’t been without some controversy.

Walmart’s Mike Cook recently called the current transition a joke, mostly because the card brands insist on chip-and-signature to verify transactions instead of the more secure chip-and-PIN method, which is the standard in most countries including Canada and the U.K.

Another emerging issue is that some merchants do not believe they’ll be ready to meet the deadline. The Food Marketing Institute, a retailer trade association, last week sent a letter to the card brands asking them to delay the deadline into 2016.

Despite some hiccups, the EMV transition is well underway, and many industry experts believe NFC-enabled mobile payments stand to benefit as new point-of-sale terminals contain the necessary technology for consumers to make contactless payments with their smartphones.

“When you have [something like] Apple Pay, it’s going to be better [for merchants] to accept it,” William Nichols, the CEO of Toronto-based mPOS provider AnywhereCommerce, told Mobile Payments Today in an interview. “[Apple Pay and other mobile schemes] are going to push merchants large and small to move into EMV faster and request their terminals be contactless enabled.”

Mobile Penetration

You’d be hard-pressed to find an executive in the payments industry who doesn’t believe the EMV migration in the U.S. will help make NFC mobile payments more mainstream.

Companies such as Ingenico and Verifone already have deployed thousands of EMV-enabled POS terminals and the majority of those readers are equipped with contactless technology. While the merchant has the final say to switch on the technology, no one (unless you’re an MCX merchant) can think of a good reason why a retailer would choose to keep it off.

“I can’t think of any reason why a merchant wouldn’t accept contactless unless they were selling very high-value items and wanted to do the transaction a different way,” Jeremy Gumbley, the chief technology officer for New York-based payment gateway provider Creditcall, told Mobile Payments Today in a recent interview.

But Gumbley cautions some merchants might take a wait-and-see approach when it comes to mobile wallets.

“We just don’t know what is going to happen with things like Google Wallet or Apple Pay,” he said. “We don’t know yet if it’s going to turn into an absolute must have in the next year.

“[But] if I’m upgrading to EMV, I might as well accept contactless because I don’t want to run the risk of decreasing the number of customers I can service.”

For the last few years, two things have stymied NFC-enabled mobile payments in the U.S.: a lack of the properly equipped smartphones and contactless acceptance points. Both are no longer the big obstacles they once were.

A variety of Android-powered smartphones now contain NFC chips as a standard feature. Host Card Emulation also has helped mobile wallet providers sidestep access to the secure element on Android smartphones to enable contactless transactions.

Apple will now include NFC chips as a standard in some of its most popular devices.

As for potential mobile NFC acceptance points, Sweden-based research firm Berg Insight estimates the installed base of contactless terminals in the U.S. stood at 3.7 million at the end of 2014.

The contactless infrastructure is present in retailers and growing at the same time smartphones become more sophisticated.

“If you’re trying to enable mobile payments in a method that’s not supported by the infrastructure, then you’re adding a cost that already hasn’t been consumed [by the merchant],” Gregory Burch, vice president of mobile business development and ISV partnerships at Ingenico, told Mobile Payments Today in a recent interview. “If there’s already an infrastructure there with NFC-enabled terminals in the major retailers, then the barrier to entry for mobile wallets to support that is lower than other tech.”

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One particular retail segment payments providers should monitor in the U.S. during the EMV transition is the hospitality sector, particularly bars and restaurants. Those businesses will have some key decisions to make in regards to how they settle payment with their patrons in the coming era of chip cards.

“What those restaurants have to figure out fundamentally is if they are going to shift the whole model to a pay-at-the-table one,” Erik Vlugt, vice president of global products at VeriFone, told Mobile Payments Today in an interview. “I’m not seeing a huge shift toward pay-at-the table yet, but we certainly have worked with a number of customers to start implementing it.”

Pay-at-the-table EMV terminals are commonplace outside the U.S.

Scott Holt, vice president of marketing for Ingenico, relayed an anecdote about a visit to a Paris restaurant where the wait staff brought him a pay-at-the-table terminal at the conclusion of his meal. Not only was he a little taken aback at seeing one, the restaurant at first did not know what to do with his magnetic strip card.

“When EMV comes, you have to be able to enable this [in the U.S.],” Holt said. “It doesn’t necessarily have to be done with a tablet or a mobile device, but can be enabled through a smart terminal. That’s an area of focus that people are thinking about.”

Vlugt believes pay-at-the-table will become commonplace at large chains with an integrated operating environment. Independent restaurants, he said, have one of three options to choose from:

They can do nothing and deal with the liability shift depending on their ticket values.
They can upgrade existing equipment and take payments as they have in the past and ask the consumer to enter a PIN in cases where it’s required.
They can go with pay-at-the-table

Pay-at-the table is an attractive option for merchants, especially since newer devices contain contactless capabilities to accept mobile wallets such as Passbook and Google Wallet, as well as EMV cards. Ingenico and Verifone each produce such devices for restaurant environments.

Whether the card networks delay the deadline is a moot point at this time. If you walk into any major retailer, you’ll find an EMV-enabled terminal. While some retailers like Target and Walmart do not accept NFC-enabled mobile payments yet, others such as Panera and Whole Foods welcome them with open arms.

Now, it’s up to consumers to take advantage of the growing contactless infrastructure.

“What we see is mobile and traditional payment platforms coexisting for quite some time,” Creditcall’s Gumbley said. “I think it’s pretty clear that over time, cards will be used less and the mobile form factor will increase in its value to consumers.”

For more on the role small merchants play in the EMV transition in the U.S., read a recent blog post from payments industry analyst Jordan McKee.