Beyond EMV: A Struggle For Dominance In Payment Systems

When your parking customer swipes a card, waves a smart phone near a reader or scans a Quick Response (QR) code, both you and the customer are picking the winners and losers in the ongoing fight for control of the payments industry.



As credit/debit Point-of-Sale (PoS) solutions continue to penetrate the parking industry, more and more transactions will be electronically conducted. The technology for various, non-card PoS payment "gateways" is also proliferating at a mind-boggling pace. This is allowing merchants and consumers any number of ways-from license plates to Apple watches-to complete these transactions.


"There is a battle raging to capture the consumer payment," says Joe Survance, senior vice president, marketing & business development for Amano McGann, Inc. (AMI). Regardless of the path a transaction takes, experts agree that loss through "slippage" (i. E., customer or employee theft/mishandling of funds) will decrease as the number of e-transactions rise and cash collections decline.

However, gains from loss prevention will not all fall to the bottom line. The costs of associated hardware, such as PoS devices, firmware, software and payment processing, are predicted to increase. One need look no further than the gasoline station industry for an example of how this can-or will-change parking's cost structure.

According to a recent report, service station managers report that credit/debit fees now comprise their fourth biggest operating expense after labor, rent and utilities.


EMV is a Moving Target

Pushing consumers and parking operators/owners into the middle of this fray is the deadline for compliance with new EMV (EuroPay, MasterCard, Visa) standards and technology (see the page 25 sidebar on this "liability shift"). This transition is underway elsewhere in the world, as well.

But parking access and revenue control systems (PARCS) manufacturers, distributors and dealers who serve the U.S. market- the largest in the world-are caught in the middle.

These vendors are reporting that customers are concerned about meeting the deadline, but EMVCo has yet (as of March 2015) to offer details about how to comply. "It is very important to understand," says Survance, "EMV specifications are still evolving and there is no date for their final release. We are shooting at a moving target."

Survance believes that PARCS manufacturers, such as AMI, will meet this challenge once the details are known. "AMI has assembled an internal team from various disciplines within the company including product management, engineering and marketing. We have a defined road map and are confident in a delivery on-time and compliant with the specification once it is released."


Critics Suggest EMV Moves Fraud Costs to Merchants and Consumers

Payments industry critics are saying EMV appears to be a massive, one-time, one-sided transaction. According to opponents, EMV pushes the ever-increasing costs of fraud off the books of the card issuers onto the balance sheets of integrators, systems providers and end users like merchants and consumers.

EMV, these critics allege, has cleverly channeled public and governmental outrage over identity theft into a much broader solution. It beneficially reduces fraud throughout the system but foists the costs of implementation of the solution and risks for future fraud onto the end users of the system.

No doubt fraud and media exposure of hacks are a double whammy of cost and bad public relations for merchants. A hack creates crisis management costs and the expense of making customers whole. It also projects an unsavory commercial image of instability and incompetence. EMV makes the credit and debit infrastructure more secure, obviously benefiting everyone, but first and foremost, the payments industry.

"I believe it's all about risk management and PR," Survance observes.

Like EMV, "the merchant acquirers and payment processors want to reduce their liability."

Legacy Systems Need Retrofitting to Comply

Older devices and systems, often referred to as "legacies," were not designed to support EMV.

"Considering the investment our loyal customers have made in our products," says Survance, "AMI is designing terminal retrofit kits to incorporate the components of the device and customer interaction required with an EMV transaction. We have the hardware, which will require a firmware update once the specs are done. There will be software updates as well. All this can be done in the field."


EMV Standards are the Great Unknown

The problem that has emerged for manufacturers and systems integrators is that without clear, specific standards from EMV, a design cannot be finalized and no one knows how much it will cost.

Harry Katsoudas, president of Atlanta-based ASPIS Parking Solutions, a TIBA Parking Systems distributor, estimates the cost of these upgrades at between $2,000 and $5,000. He emphasizes, "That's per payment site. If you have a small garage with, say, two cashier lanes and a pay-in-lane device for after hours, you need three black boxes. That might cost $15,000."

"Some solutions providers and integrators are offering their larger customers a free upgrade on systems less than a year old," says Katsoudas. "If you're a smaller customer or your system is more than a year old, you're going to have to pay, and it won't be cheap."

The wide range of potential costs is due to manufacturers not yet being able to calculate all their research, development, manufacturing, installation and support costs. One more unknown for manufacturers: liability cost. Since manufacturers are certifying their devices, they are assuming at least some liability risk for bad transactions or hacks that might elude their proprietary controls.

This, in turn, may change the cost basis for payment processing. "It is important that parking industry merchants check with their acquirer/processor for any additional cost considerations that may be incurred to implement an EMV-compliant payment acceptance solution," says Survance.

 
EMV Will Create Winners and Losers

Katsoudas says, "The customers and the clients say when it comes to PoS gateway payment systems, 'You gotta take 'emall'. The reality is you can't take them all. As with any technology race, there will be winners and losers.

TIBA will watch where the market trends take us and we will be where our customers need us to be."

"Whoever ends up controlling this-whether it's one company or a consortium- is going to make more money than you can believe," says Katsoudas.

That's because all along the way, there's a network of payment processors linked to whatever you are paying for, wherever you are paying it and whatever technology you use to pay. Th is network or that network, it doesn't matter.

"[Each network takes] a piece: a penny, a nickel, at each stage along the way. The ones on the front end, at the point of sale, and on the back end, at the point of payment will decide how that money flows. Whoever controls the front end and back end makes the real money; they win," notes Katsoudas.

 
Apple Pay Expected to Gain Stronger Position

One new PoS offering is Apple Pay. "I think Apple Pay will be a winner due to its captured consumer base, such as iTunes," says AMI's Survance.

"The recent validation of Apple Pay by American Express positions Apple for continued growth. Our new OPUSeries terminals and OPUSuite cloud application are Apple Pay-ready, using Near Field Communications (NFC) readers that are an optional add-on.

"The big retailers are fighting back, going as far as removing Apple Paycompatible NFC readers. Others, like Target and Walmart, are launching a rival app (CurrentC) in cooperation with numerous other retailers. They are concerned transaction costs will increase as Apple Pay, Visa and MasterCard gain a stronger position. Apple Pay runs on the credit card networks and CurrentC does not."

"The guys in the middle processing payments will get squeezed, but they will do all right There are a lot of crumbs under the table," says Katsoudas. "The real losers will be merchants who must take on more fraud risk and consumers who will pay a bit more for the convenience and security of the transaction."

 
EMV Still Wins in Major Irony

Amidst all the uproar about compliance is the acknowledgment that the U.S. market is different than developed ones in Canada, Europe, Asia and South America where the "liability shift " is well underway. "Th ere is already talk of banks dropping the EMV Chip and PIN and going to Chip and Signature," says Survance, "because they think consumers will be more likely to accept it here in the U.S."

Bottom line for Chip and PIN and Chip and Signature: If you implement the solution, EMV wins; if you don't implement, EMV wins.

NEXT MONTH: In Beyond EMV Part 2, Parking takes a look at the risks and costs of not complying with the new EMV standards.

WHO OR WHAT is Inside the Black Box of the Payments Industry?

No matter what you use to pay-card, smartphone, pay by- plate, etc.-most e-transactions funnel back to credit or debit accounts. Cardholders are typically aware of only two parties in these transactions: the merchant with whom they make a purchase and their card issuer.

However, there are numerous other parties involved in every credit/debit transaction. These players are all vying for a sliver of the transaction. The cast of characters shifts according to how you pay, what card you use and where you use it. Some perform more than one role in the process. Some are basically middlemen or resellers. Consider too, that alliances frequently change. Meanwhile definitions, like card processing fees, are often opaque. Here are the players in a "typical" EMV transaction:

CARD ASSOCIATIONS - Big banks, such as MasterCard or Visa, that control access to credit/debit markets via a network of participating entities.

CARD ISSUERS - Includes members of the card associations, such as American Express or Discover who issue their own cards, but also association banks who create "affiliation" cards, such as those for airlines or hotels or "destination" cards. "Destination" cards are valid only at certain stores or gas stations.

MERCHANT ACQUIRERS - Card-accepting banks and their network associations that sign-up, bundle and deliver merchants to the card associations.

CARD NETWORKS - Secure networks handling, transmitting and possibly storing the data.

GATEWAY PROVIDERS - Hardware, software or virtual point-of-sale terminals handling the transaction according to Payment Card Industry Data Security Standards.

INDEPENDENT SALES ORGANIZATIONS - ISOs are not card association merchant acquirers, but have a relationship with one, performing various functions such as sales to new customers, customer service or related terminal hardware/software sales. Adding yet another layer, ISOs may also retain independent agents or resellers to represent them.

PAYMENT PROCESSORS - To reach the markets, card issuers and associations must team up with what amounts to escrow services, which handle transactions securely and at arms-length from both the merchant and customer.

 
WHAT IS THE EMV DEADLINE?

On October 15, 2015, a "liability shift" will be implemented by the EMVCo, LLC, a consortium of the largest card issuers and associations, founded by EuroPay, MasterCard and Visa. According to EMVCo, the purpose of the deadline is "to encourage the U.S. acceptance of EMV payments to reduce lost, stolen or counterfeit card fraud. Following this deadline, the liability for a card-present fraud will shift to whomever is the least EMV-compliant party in the fraudulent transaction, where currently the payment processor or issuing bank is responsible for the loss."

Source: www.emvco.com

WANT MORE INFORMATION?

See www.emvco.com for official information on the liability shift; Contact Joe Survance at Joe.Survance@ amanomcgann.com; Harry Katsoudas is at xarilaos@bellsouth.net.

Charles R. "Charlie" Munn III, CAPP, CPP is a former commercial parking executive and is now an international parking management consultant and writer based in Latin America. Email him at: c.r.munn@terra. com.
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