Mobile card readers like Square and PayPal Here must inevitably offer an EMV-chip card option to U.S. merchants, but how soon is too soon? And what are the consequences of arriving too late?
Square will offer an EMV version of its plug-in mobile card reader next year, but has not specified a launch date or price. PayPal offers an EMV version of its own card reader in the U.K. and Australia, but has not revealed its plans for bringing this device to the U.S.
If Square, PayPal and others release an EMV card reader too soon, there may not be a demand for the technology. But if they wait too long and larger merchants put the technology in place first, the micro-merchants that rely on mobile devices may become targets for fraud, said Thad Peterson, senior analyst with Boston-based Aite Group.
"It's important for [Square] to be positioned to offer an EMV product before the liability shift because there is a real significant risk that once EMV becomes accepted at larger merchants, fraud will very quickly migrate to smaller merchants," Peterson said. "If [Square] is going to be viable going forward they need an EMV offering."
But neither company is a first mover. Ingenico's Roam, for example, launched an EMV chip-and-PIN mobile card reader in the U.S. in February 2013, followed by a chip-and-signature version in April 2013. Roam's chip-and-signature devices cost about twice as much as a magstripe reader, and the chip-and-PIN version costs about five times as much as a magstripe reader (the company would not disclose its actual pricing).
"Although the U.S. has not yet migrated to EMV, we decided to launch both our chip-and-sign and chip-and-pin [mobile point of sale] solutions to not only meet the immediate demand of our international customers, but also to help our U.S. customers begin making a more seamless migration to EMV," said Scott Holt, vice president of Roam, in an emailed statement.
The card networks have set a deadline of October 2015 for companies handling card payments to adopt EMV-chip technology. Those who miss this deadline face a shift in fraud liability (gas stations have an extra two years).
Some larger merchants are on track to adopt EMV ahead of this deadline. Target, for example, fast-tracked its own EMV migration in the wake of its holiday-season data breach.
Square's upcoming device requires users to "dip" the short end of a payment card to read the EMV chip, instead of swiping the longer end as is typically done for swiped card payments. Square's device also supports magnetic-stripe payments.
The card reader will also come at a cost, unlike the magstripe version which is free to merchants that order it by mail and $10 in stores with a $10 rebate when merchants activate their account. Square wouldn't yet disclose the actual price for its EMV device.
"It seems to me that Square's business strategy would be to get as much penetration as quickly as possible" to get ahead of the competition, Peterson said. "But the cost could be more of a barrier than a revenue stream in this case."
Retailers that don't understand specifically the distinction between magstripe and EMV card readers might be confused and agitated to pay more for one device, he said.
Square did not respond to questions by deadline.
PayPal has been focused on removing the plastic card from the in-store payments experience altogether, said Anuj Nayar, senior director of global initiatives at PayPal. Some retailers let shoppers spend from a PayPal account by typing a phone number and PIN at the point of sale; others support PayPal through a magstripe card.
"Technology has been moving at such a rapid pace that when retailers start looking at ripping and replacing those terminals they'll look at all the technologies out there and we think we're in a really interesting place," said Nayar.
PayPal has a more diverse product set than many of its rivals in the mobile point of sale market, says Peterson.
"The plug-in sled that is Square's trademark, my perception is that that is not the main thing PayPal wants to do," said Peterson. "The micromerchant is not necessarily the area PayPal wants to play in."
Peterson predicts that more companies in the U.S. will begin with signature authentication for chip-cards and move to PIN at later date.