October 17, 2014
It’s a well-known fact that the Payment Card Industry (PCI) Security Standards Council has set new rules for merchants and financial institutions. The new rule will be effective October 2015 and implies that the stakeholders who have already adopted EMV will be protected against fraud liability. This new rule requires many other retailers to upgrade their point-of-sale systems otherwise they could be held liable when fraudulent cases occur.
The EMV standards have been established by the three major card networks; Eurocard, MasterCard and Visa. All the three card networks have clearly cited that retailers will need to employ EMV-compliant POS terminals in order to avoid the fraud liability. This has put retailers in a bind on how to utilize their payments capex in 2015-16. Retailers are skeptical of upgrading to the expensive terminals which will bring with them further payment infrastructure development costs.
However, Discover, another major card network, is instituting a different policy on Fraud Liability Shift. This policy would simply require the entity accepting payments to leverage the highest level of available payments technology. Retailers can see a new opportunity in Discover’s requirements. Although Discover is not part of EMVco, it has helped develop EMV standards and new tokenization specifications as well.
A new path could be opened for retailers who opt for Discover for payment processing. What if retailers adopt an EMVco compliant tokenization platform for payment processing? They also have the option to move to a tokenized mobile wallet solution. We already have Apple Pay which employs a secure element, NFC and biometric authentication methods along with tokenization. Retailers can look to other alternative payment methods as well.
There are payment options available for retailers that won’t require major infrastructure changes. For example, PayPal had launched a payment app called Payment Code last year which utilizes a unique QR code to complete the transaction securely. Loop Wallet employs an encrypted keychain fob in which the payment card info can be stored. The fob can then be utilized at existing POS terminals while also keeping the data secure. Then there’s Dynamic Inc. which has developed a new form of credit card with a dynamic code that changes with every transaction. It also performs PIN based user verification.
Retailers can also leverage options pertaining to cardless transactions. NFC provides a form of cardless transaction and has a direct link to EMV as well. NFC uses EMV technology to communicate with EMV chip cards or smartphones without direct chip contact. These alternative payment methods seem to be a promising way to avoid fraud instead of spending millions on upgrading terminals. It is up to the payment companies to promote these methods.
With payment processors like Discover ready to provide a different roadmap, it is up to retailers to push for more secure and flexible technologies like tokenization and new payment services like Apple Pay.