Theres a consensus in the acquiring industry that long-awaited changes in payments technology are bound to take place. Consumers will pay with mobile devices and chip cards. Merchants will possess all of the tools to accept those payments and potentially a host of other payment types.
But how and when will those changes will occur? What will the results will look like? Where will ISOs and agents fit in?
Everybodys certain that change is going to happen. But I havent heard a great deal of certainty about how all of this is going to take place at the point of sale, says industry consultant Mary Winingham, CEO of Delvan, Wis.-based Mirror Consulting.
ISOs are living in a time when widespread use of certain technologies seem imminent one day and on death watch the next. Tech observers who predicted the demise of NFC contactless payments changed their tune this past year when Googles latest version of Android began supporting Host Card Emulation (HCE), which enables mobile devices to emulate a secure NFC transaction through the cloud. Meanwhile, confidence is growing that widespread EMV chip card acceptance is a foregone conclusion, with deadlines approaching for merchants to comply with the new standard by October 2015.
At the same time, ISOs and other players are mapping out strategy to decide how to leverage new technology to gain revenue and market share. Industry members have held their breath while tech behemoths such as Apple and Google size up the payments business.
Winingham believes the industry will face two main challengesfirst, to determine which technology will win, and second to deliver that technology to every merchant in the U.S. That is not an easy task, she says.
The question that remains is whether that task will fall to the ISOs.
Industry observers have come to expect that EMV chip card technology will become the norm at the point of sale. Adoption deadlines set by the card brands could help ensure that EMV wont suffer the same chicken-and-egg scenario that has plagued other payments types.
As of Oct. 1, 2015, merchants who do not accept credit cards via EMV-enabled transactions will be automatically liable for chargebacks. The liability will shift from the credit card companies to the merchants. That will move adoption a lot faster, says Simon Lobanov, CEO of Red Payments Inc. in New York.
Thats not to say widespread adoption will be easy or quick. As the head of an ISO operating in both the U.S. and Canada, Lobanov experienced the Canadian EMV transition a few years ago. But the U.S. is much larger than Canada, and he says that could create setbacks during the transition.
It took Canada a good six years to move to EMV, so I imagine its going to be a very painful and longer process in the U.S., Lobanov says.
EMV is designed to shield merchants from the counterfeit card market, but it wont solve every security problem.
The industry will have to learn to accommodate multiple payment methods, and each one will have unique characteristics with respect to security, predicted George Peabody, partner with Glenbrook Partners LLC, a payments consulting firm based in Menlo Park, Calif..
Its a step in the right direction, but its not sufficient, Peabody said of EMV.
Besides, the technology will take eight to 10 years to take hold here, he suspects.
Meanwhile, Near Field Communications has wavered between acceptability and irrelevance for a long time, as infrastructure to support the technology has been limited. But doubts about NFC are lifting now that HCE technology has gained traction this past year. Whereas NFC would require a physical secure element in the smartphone, HCE eliminates that requirement by routing data securely through the cloud.
Last year, the Android 4.4 software, known as KitKat, included HCE technology, which allows the devices to talk to contactless payment terminals. A few months later, Google Wallet stopped supporting its NFC tap-and-pay function in favor of HCE technology.
MasterCard and Visa have also announced support for HCE payments, as have BlackBerry and several international banks.
However, NFC still has several short-term problems, and its future is tied to what Apple does, Peabody said. Apple does not support NFC in any of its phones, although it reportedly might use the technology as part of an upcoming service in China.
Peabody suggests that Apples newly forged alliance with IBM to develop business apps for the iPhone and iPad could result in a platform that doesnt need NFC. One of the struggles of NFC is that merchants dont want to invest in technology that appeals to only a small percentage of the population, he says.
Long-term, if it gets really inexpensive, NFC could have legs. But short term, it still has plenty of headwinds, Peabody said.
Apple might not move toward NFC, but it has shown interest in Bluetooth Low Energy (BLE) technology, which enables merchants to place beacon devices throughout their stores and offers a longer signal range than NFC. The beacons send signals to customers mobile devices as they enter and to deliver targeted ads and promotions. It also enables customers to pay with a smartphone at checkout.
Apple has been testing the technology through what it calls the iBeacon, and PayPal is putting together the PayPal Beacon. Android, Microsoft and also BlackBerry support BLE.