Preparing for Future Payment Systems

First it was PCI, now retailers have to prepare for the widespread launch of Near Field Communications, which is expected to become a widely used system for making payments by smartphone in the U.S.

By Howard Riell, Associate Editor.

The convenience store industry is increasingly turnings its gaze outdoors to the forecourt, not only for innovative marketing to help bring customers indoors, but for more effective ways to secure transactions.

While securing transactions isn’t as sexy as splashy outdoor marketing and promotions, its long-term implications for operators must be looked at closely. For example, Visa recently announced plans to accelerate the migration to contact chip and contactless EMV chip technology in the U.S.

EMV stands for Europay, MasterCard and VISA, a global standard for interoperation of integrated circuit (IC) cards and IC card capable point-of-sale (POS) terminals and ATMs for authenticating credit and debit card transactions. The joint effort is aimed at ensuring security and global interoperability so that Visa and MasterCard cards can continue to be accepted everywhere.

The adoption of dual-interface chip technology will help prepare the nation’s payment infrastructure for Near Field Communication (NFC) mobile payments by building the necessary network to accept and process chip transactions. The chip technology should also enhance payment security through the use of dynamic authentication. If payment card data is compromised, a counterfeit card would still be unusable at the point of sale without the presence of the card’s unique elements. Eliminating static authentication reduces the value of stolen cardholder data.

According to a company bulletin, Visa will offer merchant incentives to upgrade to EMV chip-enabled terminals, requirements for acquirer processors to support chip acceptance and—most notably—the introduction of liability shift policies.

The credit card company said it will be willing to waive Payment Card Industry Data Security Standard (PCI DSS) compliance validation requirements in order to encourage retailer investment in contact and contactless chip payment terminals. It will also require acquirer processors to ensure that their systems support dynamic data acceptance, and will institute a domestic and cross-border counterfeit
liability shift.

Additional Retailer Liability?
As one industry executive, who asked not to be identified, noted referring to the offer of incentives, “That’s the carrot. The stick is that Visa will also implement a liability shift so that the cost of fraud that would otherwise have been prevented by using EMV will be borne by the retailers.”

Indeed, Visa said that it plans to institute a liability shift for domestic and cross-border counterfeit card-present point-of-sale transactions starting Oct. 1, 2015. At present, fraud is mostly absorbed by card issuers. In the wake of the planned change, when a contact chip card is presented to a merchant that has not adopted contact chip terminals, liability for counterfeit fraud may shift to the merchant’s acquirer. Petroleum retailers will have an additional 24 months before a liability shift takes effect for transactions generated from automated fuel dispensers.

According to Visa, the liability shift encourages chip adoption since any chip-on-chip transaction, such as a chip card read by a chip terminal, provides the dynamic authentication data that helps to better protect all parties.

Visa also said that the U.S. is the only country in the world that has not committed to either a domestic or cross-border liability shift associated with chip payments.

“Ultimately, the big issue for every merchant is going to be the shift in liability and how this actually gets implemented between now and then,” said Pete Bartolik, spokesman for VeriFone Systems Inc., a global provider of technology that enables electronic payment transactions and value-added services at the point of sale. “The devil is in the details.”

For proof, Bartolik pointed to what happened in the United Kingdom (UK) with the move to Chip and PIN (the brand name adopted by the banking industries in the UK and Ireland for the rollout of the EMV smartcard payment system for credit, debit and ATM cards). 

“Essentially what they did was shift the traditional fraud relationship, where the card brands absorbed the cost of fraud,” Bartolik said. “It had been built it into their rate structure. Then they said, ‘Well, if you have the opportunity to adopt an EMV technology and you don’t do it, and then you subsequently are the victim of fraud that could have been prevented by using EMV, it is your responsibility to absorb those costs.’”

Ultimately, Bartolik said, the liability shift changes the equation dramatically. His advice to c-store operators? “Begin planning, and factor EMV into your upgrade plans. The future can come pretty quickly.”

Calculating Cost
Costs, obviously, are another major issue with which the convenience store industry has been grappling.

“NACS welcomes the migration from the current, unsecured payment system, but is anxious to learn what financial incentives will be offered to convenience and fuel retailers to defray the huge cost of upgrading 800,000 dispensers and 300,000 points of sale,” said Gray Taylor, executive director of PCATS. “If Visa is coming to the market with reduced interchange, indemnification on fraudulent use of their products and relief for the retailer’s huge annual expense for PCI compliance, then we think there is a value proposition here. Without any one of these elements, it will be hard to justify the upgrade.”

Taylor added that the onus still falls on Visa. “It is frustrating that Visa is still obsessed with dynamic account values, while doing nothing about authenticating the card user,” he said. “EMV without user authentication only addresses part of the data security challenge.”

Pumps and Promotions
Security and compliance issues aside, more convenience stores are partnering with manufacturers to install media platforms at their fuel pumps to drive in-store traffic. These platforms not only advertise in-store specials, but collect additional revenue by selling advertising or receiving a commission on ads run in the stores. The opportunities are enormous.

“Tapping into seasonal or promotional sales at the pump throughout the year gives you ample ammunition to generate more revenue,” said John Matthews, president and CEO of Gray Cat Enterprises Inc. in Raleigh-Durham, N.C. How best to take advantage of it?

“Identify the season or seasons that dovetail nicely with your store’s theme,” Matthews advised. “This could mean any holidays or times throughout the year, so that you can bundle your products in gift themes or group packages and promote them at the pump.” Putting ideas into customers’ heads regarding key seasonal sales—for instance, a sales promotion leading up to the Super Bowl—is an excellent way to attract time-starved customers. “You have two minutes to make an impression and to motivate action, so make it a compelling deal.”




  1. Msmnyameni says:

    Wow that is great. In South Africa the banks are already using 3D secure for authentication. 

Speak Your Mind