It's a precarious time for security at gas stations, many of which are taking advantage of the two-year grace period they received for EMV card acceptance when the rest of the bank and retail world faced a 2015 deadline.
This extension, granted to address the complexity of upgrading gas pump hardware, paints a big target on petroleum as the last brick-and-mortar industry to upgrade to EMV security in the U.S. Fraudsters will eventually turn their attention to Web merchants, which are also unaffected by the 2015 EMV migration, but gas stations will be their oasis for some time to come.
"These are tough stores to update, every terminal has to upgrade, and there's a lot of card fraud that takes place at the pumps already," said Mark Carl, CEO of EchoSat. "In this market, it puts the point of sale at a high risk for a breach."
EchoSat is lining up the necessary technology for the petroleum push, acquiring Heartland Payment Systems' SmartLink, a business unit that provides payment processing, network communications, public WiFi access and multi-function firewalls. Heartland's salespeople will also promote EchoSat's Secure Payment Gateway, PaySafe SPG, SmartLink premium and managed network services.
While Heartland was already selling PaySafe, there was some overlap with similar payment security technology from Heartland that created competition, so it "made sense" to do the acquisition, Carl said. EchoSat serves quick-serve restaurants—its clients include Domino's—and supermarkets, though the company's largest vertical is convenience stores and gas stations, where the EMV migration will create a lot of work in the near term.
"That channel [convenience stores] is somewhat behind in chip cards. It doesn't make a lot of sense to do an EMV upgrade inside the stores if the pumps haven't been updated outside, where most of the fraud is," Carl said.
The gas/convenience store segment draws a lot of attention from merchant service providers because of the EMV migration, the heightened fraud risk and the appetite of gas station operators to improve the transaction experience by tapping mobile technology.
FIS and SAP, for example, are collaborating on cloud-delivered technology that will allow consumers to order and pay for gas from Web connected systems inside of automobiles. And Verifone and First Data have partnered to offer tokenization and encryption to protect payments at gas stations.
Other technology providers are marketing Near Field Communication and geolocation technology as add-ons to pump upgrades. The companies are chasing a major opportunity; there's more than 1.3 million fuel dispensers in the U.S. that need to be updated in the next 21 months.
"In this market that we [Heartland and EchoSat] serve together, the petro and convenience stores are really being driven by the EMV migration to update their point of sale systems," Carl said.
EchoSat also competes with Transaction Network Systems, which recently partnered with Verifone to bolster data security. TNS in 2014 shed parts of its merchant services operation in a sale to MasterCard.
"TNS sold off assets that were not core to a similar secure data communications product offering [to what EchoSat provides]," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. EchoSat's acquisition "gives it larger volume across a larger installed base, which is required to get the data communications cost as low as possible," he said.
Given the combination of EchoSat's technology and Heartland's sales reach, EchoSat's addressable market in the petro, grocery and quick-service sectors will cover more than 21,000 merchants. "We expect to see a lot of organic growth," Carl said, adding he does not expect an international boost from this acquisition.
He did not rule out future growth for EchoSat outside the U.S. as part of EchoSat's ties to Heartland. Global Payments is acquiring Heartland in a $4.3 billion deal that Heartland hopes will improve its sales profile in markets outside the U.S.
The EchoSat deal allows Heartland to "jettison business units" that are not aligned with needs of Global Payments, Sloane said.
"As a payment processor and merchant acquirer, Heartland has many requirements to ensure compliance and security of all of our solutions. Delivering managed network and connectivity services require an additional and unique level of compliance," said Kevin Petschow, a Heartland spokesman, in an email. "With EchoSat as our partner, we can now focus on our core strengths of distribution and merchant support and have EchoSat manage all aspects of operations and network compliance."