Eager to appease EMV-weary stores, Sionic Mobile is finishing tests on a system that uses a three-digit code to execute payments via mobile devices.

"We've had zero fraud in beta testing this system," said Ron Herman, CEO of Sionic Mobile, adding the new system is "absolutely" an alternative to EMV. "When we say we're better than EMV, that’s because there's still fraud in EMV."

Either a consumer or merchant can initiate a checkout, and Sionic's fraud protection system generates a three digit code that authorizes the transaction. Both smartphones—the consumer's and the merchant's—are geocoded for a short time, usually less than 10 minutes, to facilitate the transaction between them.  

Calling the checkout process mobile-to-cloud-to-mobile, Sionic tokenizes consumers credit and debit card information through JPMorgan Chase, and nothing is stored on the mobile phones or in Sionic's app. "We have a relationship with Chase as a full-liability fraud submitter," Herman said. "If we can't detect fraud up front, we're on the hook for that transaction."

Sionic Mobile is leaning on its existing loyalty program and security protocols to promote the new checkout system. "Merchant participation in the loyalty program is crucial," Herman said.

Under Sionic’s model, merchants pay a 1% payment fee and a minimum 1% reward to the consumer. Sionic Mobile rewards a virtual currency called "Ions" which can be redeemed at the company's merchant network. Consumers earn an average of 3% at small businesses, and 5% at national merchants. Sionic recently added a feature that allows free advertising to bolster its appeal to small businesses.

Security is provided by "selfie authentication" on the front end and a 15-point fraud detection system that the company updated after it noticed spikes in fraud after data breaches at national retailers. "We're confident that's better than EMV," Herman said.

Sionic is also betting that using the consumer and retailers' mobile phones to execute transactions will be easier for both parties than a combination of a mobile phone and a merchant's point of sale terminal.

"It's mobile to mobile, so the payment gets processed in a second," said Keith Morrison, manager of Zocalo, an Atlanta-area restaurant that's using Sionic's three digit checkout code, who added the restaurant has had problems in the past with plastic credit cards getting lost, which is a hassle for the staff and consumers.

Zocalo does not accept EMV chip cards right now, though it is considering its options.

Sionic Mobile is not alone in pitching mobile apps as an EMV workaround. MyCheck offers an ordering and payment app designed as an alternative to EMV for restaurants.

Still, merchants that accept cards will need to accept EMV as a baseline, said Tim Sloane, vice president of payments innovation at Mercator Advisory Group.

"Merchants planning that investment then need to consider if mobile engagement is important for their customer base," Sloane said. "If it is then clearly they need to start considering mobile solutions."

There are also different mobile models, which won't appeal to every consumer, Sloane said.

"A mobile app caters to a different customer than NFC mobile payments," he said, adding NFC caters to walk-in customers of infrequent shoppers while an app targets repeat and persistent shoppers.

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