EMV Offers ISOs A Chance For Differentiation

The switch from magnetic stripe cards to EMV in the U.S. appears unlikely to create a surge in demand for EMV-capable terminals, but the changeover still offers opportunity for the acquiring industry.

ISOs and agents can seize the changeover as a time to engage with their customers and offer value-added services, especially those related to device updates, staff training and customer loyalty offers, sources say. Those services can, in turn, improve ISOs’ bottom lines.

That comes as welcome news because the switch is not expected to boost terminal sales or leasing, at least in the short term. Merchants will probably wait to upgrade their equipment until the 2015 liability shift draws closer.

Even after the increase in demand arrives, it’s unlikely to generate vastly increased profits for ISOs and agents from selling and leasing the devices.

Still, terminal makers do expect some increased demand from the changeover: Ingenico SA saw an increase in terminal sales in Canada during that country’s switch to EMV, says David Chaudhari, who serves as managing director of Ingenico Canada.

“But it wasn’t astronomical. It wasn’t a doubling,” he says. “I think that will probably be true in the U.S. because, like Canada, the U.S. has been placing EMV-capable devices, so it will require [only] a software switch.”

Demand should increase as the liability shift approaches.

“I don’t think you typically see a spike,” said Todd Ablowitz, president of Double Diamond Group LLC, a Denver-based payments consulting firm. “You see a curve of opportunity. The beginning is slow, and the end is slow. 2016 to 2018 would be the middle.”

Henry Helgeson, co-CEO of Merchant Warehouse, a Boston-based ISO, believes demand will pick up once merchants start to use the cards to make purchases in their role as consumers.

“In the medium-term, I think this is really going to take off,” he says. “ In the short term, it’s going to be small, incremental sales. It’s about demand generation at this point rather than demand capture.”

Terminal makers expect the strongest demand for new terminals to come from two sources.

The first force for demand will be merchants whose terminals are due for an upgrade in the next three to five years but who would have preferred to wait; they can no longer do so because of the liability shift.

The second source of demand will arise from merchants without customer-facing equipment.

“In the EMV world, the consumer has to insert their own card,” notes Erik Vlugt, Verifone Systems Inc. vice president of marketing, North America. A significant number of merchants, including those with small stores or in hotels and resaurants, will have big changes. “All those segments where you’re used to a card handover are going to be churning.”

Thierry Denis, president of Ingenico North America, also expects the pay-at-the-table segment to become important, especially as consumers grow accustomed to EMV and used to keeping their cards throughout transactions.

Even with the increase in demand for terminals, however, it’s unlikely that demand will translate directly into increased profits for ISOs.

“The days of making money on the terminals are long behind us,” Helgeson said. “There may be some short-term gains for ISOs that want to make money on this, but it’s really going to be about gaining market share.”

To gain that market share, and to make the most of the switch to EMV, ISOs should ensure they’re learning as much as they can now., That way, when EMV gins to proliferates they can teach their customers about the complexities of EMV compliance and about other possible revenue sources related to the spread of the new technology.

Chaudhari encourages ISOs to do what those in Canada did and get involved early. “Understand what it means and what your options are,” he said.

An early start will give ISOs and agents time to understand EMV compliance requirements, such as software updates to the terminals, and to gain a competitive edge by offering services that insulate merchants from dealing directly with those requirements.

Programs that offer merchants automatic updates to their equipmentalso can benefit ISOs and their customers, observers agree.

An expanded version of this article is scheduled for the May-June print issue of ISO&Agent and on ISOandAgent.com.