With the U.S. migration to EMV smart card technology underway and the payments landscape evolving more rapidly than ever, major card networks have been re-examining their roles to determine how best to serve acquirers, issuers and merchants in a way to improve consumer experiences.
Tim Murphy, chief product officer at MasterCard Inc., spoke to PaymentsSource about why the industry needs the EMV standard, as well as the various challenges facing his company as the payments ecosystem moves into a new, technology-driven era.
PaymentsSource: It has been suggested that the U.S. has the technology and know-how to create something better than EMV. Some in the industry wonder why we are trying to fix something with EMV that’s not broken. Would you agree?
Murphy: No. What we have [mag-stripe technology and global limitations] is broken and it needs to be fixed.
PaymentsSource: From the security side?
Murphy: From the fraud and business side. You will often hear that this [EMV migration] is such a hard task and why don’t we leapfrog to something else? Our view is that there are a number of imperatives driving the shift to the EMV now in the U.S. Clearly, one is to continue to take fraud out of the system. EMV lets you close off significant avenues for fraud. U.S. merchants and issuers have invested enormously in fraud reduction. There’s a lot of rhetoric around that, but the truth is that some of the merchants in the U.S. are the very best fraud managers in the world. Second, it has global interoperability. One of the things often missed in the U.S. dialogue is that the rest of the world has fundamentally shifted to EMV?
PaymentsSource: And where does mobile fall into that scenario?
Murphy: Even if you assume a future in which the world is going to shift to mobile, it is absolutely the case that it would happen over a long period of time. So we need something backward-compatible to the physical device. But it’s really the difference between making it backward compatible to the mag-stripe, which is several generations out of date as a technology. EMV is something that has long play in the future.
PaymentsSource: With long play, that has to mean the EMV chip will function beyond payments?
Murphy: Yes. I have spoken about the South African social security payment card, an EMV card with a MasterCard M4 chip that has the ability for both payment and an application for managing that benefits program. So the ability to layer further benefits and applications on that chip in a physical, real-world space certainly are real.
PaymentsSource: Will this help push merchants and issuers into the EMV space?
Murphy: We have tried to lay out a fair scheme of liabilities to get issuers and merchants to move to EMV. In trying to illustrate incremental use and business cases for this, we asked what else we could wrap around this, whether it is loyalty or other things that help to amortize the EMV investment. In the absence of a very clear alternative, at some point I believe you have to say we have got to move on this. And that time is now.
PaymentsSource: We hear it often that merchants don’t want to invest in new point-of-sale or mobile-acceptance equipment every two years or so. What do you say to them?
Murphy: We have heard people say “don’t make me invest in EMV, and then again in NFC.” We have not done as good of a job in the industry as we could have [in explaining this], but I believe we now have a clear road map for the U.S. that says, “If you do this thing within this box [time frame], you should be future-proof.”
PaymentsSource: The payments industry can’t operate on a technology merry-go-round, can it?
Murphy: Our business cannot sustain annual, fundamental changes in technology because it is a network of hundreds of millions of physical and digital distribution points. You can’t touch that every year. This is a generational shift to mobile, but within that there has to be a standard that we adhere to for the next 20 years. That way if smartphones change and adapt over the years, the core architecture remains maintained over that cycle.
PaymentsSource: What do you see as a technology in the core architecture?
Murphy: We put forward a path in which Near Field Communication is the solution, and we have believed fundamentally in NFC for a variety of reasons. But you hear a lot of people saying NFC is dead; but it really just arrived. It’s just the beginning. Yes, we have been at it a while, but actually the NFC adoption curve is much better than mag-stripe was. We can point to markets where it is well and thoroughly adopted. Writing it off is too premature. At the end of the day, it will always come back to the security of the transaction between the device and where the credentials are stored.
PaymentsSource: Through all of the technology change in payments, has MasterCard’s relationships with banks or merchants changed at all? Have you had to adjust your focus in any way?
Murphy: I think you are seeing two things. You are seeing a lot more players going direct to the consumer and challenging the banks’ supremacy over sole ownership of that account relationship. That’s PayPal and others, and that’s the pressure on the issuer side. On the merchant side, the focus is on a lot more benefits from accepting cards, but they are concerned about the cost of that acceptance. What we try to do is make sure we pay attention to merchants and remind them of the value our network brings. And then we innovate for them.
PaymentsSource: Does this change your business model?
Murphy: Fundamentally, we recognize our model is intermediated through consumer buys with acquirers and merchants on one side and issuers on the other. We are always going to stay within that space. I don’t see our business model changing, but our stakeholders are feeling pressure from a variety of different areas.
PaymentsSource: So those stakeholders would come to the network, asking for help?
Murphy: Yes. Issuers historically were very protective of their consumer relationships, but now what they are saying is they don’t have the money to invest [in consumer-service programs] and they are asking what we can do to help. We are seeing a lot of interest in our rewards programs. For merchants, we have a ton of data across our networks that we probably haven’t paid as much attention to as we should have in the past. It is data that merchants can use to improve their business and get more engaged with their customers.
PaymentsSource: Some acquiring processors indicate the payments industry lacks the cooperation between major players that existed in the past, partly because the card networks don’t provide the support and guidance they did prior to becoming public companies. Do you agree?
Murphy: My sense is that the incredible amount of innovation coming in through potential disruptors and new players has absolutely nothing to do with whether MasterCard and Visa are public or private. It has everything to do with radically new technologies that have the potential to shape the future of payments. People see a different way to pay with a computer in their hand, and I think that fundamentally is the driver of new players coming in.