Fixing the Mobile Shopping to NFC Payment Adoption Gap

NFC is Ready For Prime Time, but Merchants and Consumers are Standing By
Mobile in-store shopping hasn't translated into mobile in-store paying. Seventy-two percent of smartphone-owning US online adults have used their phone in-store as a "trusted advisor," to check prices, find product information, or locate an item, but meanwhile adoption rates of Apple Pay still hover around 5% for eligible transactions*.  In the past year, two market factors started to shape the next phase for mobile payments in-store. First, tech giants like Apple, Google, and Samsung released new NFC-based payment systems. Second, in an effort to avoid new fraud liability with the EMV liability shift, US retailers began implementing new EMV terminals that are also NFC ready. Yet despite consumers having the right technology in hand — and merchants now technically ready to use that technology for mobile payments in-store — consumers haven't changed their tried and true payment behavior.  
 
Merchants Need to Take The Reins
Merchants who have NFC can bridge the gap by being much more proactive in getting consumers to try "tap and pay" at the POS.  The mobile payment systems:Apple Pay, Android Pay, Samsung Pay and PayPal  have made strides to make the act of paying simple, but more needs to be done at the merchant to fully crack the convenience code.  Forrester has a framework called the Convenience Quotient**: to be fully adopted, any new product’s benefits have to be greater than its barriers to use.   Most merchants who have NFC still have not overcome the convenience quotient and therefore consumers default to their plastic card.  
 
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Global Payments Acquisition of Heartland Payments a Sign of Things to Come

Global Payments Announced on Tuesday that is planning to buy Heartland Payment Systems, a rival payment processor for $4.3 billion in cash and stock.  The two companies’ combined will be the 6th largest U.S. payment acquirer based on card purchase volume and the largest U.S acquirer based on active merchant locations (using March 2015 Nilson data to re-calculate the size of the new company).    

Global Payments gets Heartland’s direct sales force focused on selling to higher margin SMB merchants as well as new ISV and Reseller distribution relationships for its OpenEdge Integrated Payments Channel.  Global also gains a stronger U.S. presence in restaurant, retail and education verticals.

  • The new combined company will need to determine how to avoid channel conflict with Heartland’s POS companies, Xpient, pcAmerica, Dinerware and Liquer POS.  OpenEdge has operated with a strict mantra not to compete against the channel in the past.  Heartland Payments has had a more blended go-to-market strategy – enabling its direct sales to sell its POS systems while simultaneously developing ISV/Reseller channel.
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Verifone Puts New Stake in The Ground With Developer Platform

 
Yesterday Verifone announced a next generation family of payment devices, called Verifone Engage.  Verifone promises to wrap more value around the merchant-consumer interaction at the point-of-purchase with new personalized marketing features, pay-with-points and rewards.  In addition, they introduced an expanded Verifone Commerce Platform giving developers the tools to publish POS apps to a new App Marketplace for merchants.  They Linux based devices will provide an accessible and well-known framework for developers to innovate upon.  Software based solutions are transforming the industry and Verifone risked getting commoditized as a hardware vendor if it didn’t act by building a platform and marketplace for developers.   
 
What does this mean for the rest of the Payments Industry? Two stakeholders in particular will be impacted.  
 
POS Developers (ISVs) – Engage is a good development for the POS developer community and merchants.  The whole mission of a POS is to improve the customer experience at the point of purchase and streamline back-office processes for the merchant.  ISVs could integrate with Engage hardware and offer merchants more services through the Verifone App Marketplace, publish apps of their own, and potentially earn new residual revenue sources from merchants paying to use those applications.
 
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Netflix Claims Earnings Are Down As Many Subscribers Cards on File Do Not Get Updated

On Thursday Netflix blamed card processing issues for disappointing subscriber growth. Netflix said the move by U.S. banks to replace hundreds of millions of credit and debit cards with new EMV chip-enabled cards this year has led to involuntary service cancellations as subscibers cards did not automatically renew when the new cards were issued.   It is estimated that 575 million new EMV chip cards are being issued to consumers in 2015*. Many of these new cards require updated account information to be collected by subscription or recurring businesses servicing the affected cardholders.  Although the cardholder’s account number may not change with the new card, the CVV and expiration date of the card most likely will change.

Do subscription type businesses that use Card-On-File need to be concerned they will also see increased declines?

Recurring and subscription billing merchants should be using Account Updater Services (as Netflix does) for updating new payment credentials. Over the past decade, the major card brands have introduced Account Updater services that allow merchants, via their processors, to submit card data on file to the networks for updating and correcting stale information. By utilizing these services merchants retain more customers and their customers enjoy uninterrupted service. Many payment platforms are now supporting this feature as a managed service to reduce the burden on the merchant of transmitting Card on file information to the processor.

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The Transition to EMV Presents New Opportunities for Mobile Payments

Merchant EMV hardware and software upgrades at the POS pave the road for additional contactless mobile payment transactions. Most new EMV POS hardware equipment also comes Near Field Communications (NFC) ready.  In timely fashion many new mobile payments types are hitting the market (Apple Pay, Android Pay, Samsung Pay, PayPal) to take advantage of the new NFC/EMV payment acceptance hardware being installed in merchant locations.  This creates a new opportunity for both in-store and eCommerce merchants if leveraged appropriately.   
 
Tapping and paying with a mobile device removes the EMV experience friction points.   Tapping and paying with a mobile device is just as frictionless as swiping a card through a mag-stripe terminal. Consumers will find the NFC transaction more convenient than an EMV card transaction, which requires dipping it in an EMV terminal, waiting for it to read the card, remembering a PIN and then pulling it out of the reader.  Consumers will likely gravitate to the NFC simpler transaction process and become more habituated to using their mobile device to pay in-store.  Furthermore, as mobile payment providers move toward digitizing consumer loyalty credentials in-app will also help reduce additional check-out friction points.   
 
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New Fraud Targets: The Impacts of EMV Chip Card Migration Brings New Challenges

 
EMV chip card arrival to U.S. shores does not mean fraud is going away.  It will most likely shift to new channels and verticals post EMV implementation.  Past EMV transitions throughout the rest of the world have shown that EMV plays a big role in reducing in-store fraud.  Consequently, fraud flows to other channels such as Card-Not Present (CNP) environments where cards and users are more difficult to authenticate, as well as SMB in-store merchants where hardware and software has not been installed.  In this post we'll look at some of the impacts of EMV chip card migration in the U.S.
 
The U.S. will Most Likely See an Increase in eCommerce Fraud
 The U.K. saw an increase of 62 percent in card-not-present fraud after its implementation of EMV, as criminals shifted their efforts to other channels of least resistance*.  France, Canada and Australia all cite higher than 50% more instances of CNP fraud in the years following EMV implementation.  
  • Prepaid eGifts will become a particularly vulnerable fraud target.  Online gifts  require little information to send and receive, and as a result become a high-value target for fraudsters.  The growing trend of electronic gifting helps satisfy consumer demand for an instant product that is sent to anyone’s inbox around the world in seconds.  While physical gift card shipment usually takes a few hours or few days to process the merchant has time to verify the validity of the receiver.  Most fraud decisions about eGifting have to be made in real-time.  
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Merchants That Accept EMV Chip Cards Reduce Some Payment Risk, But Not All

Much has been written about the impacts of the recent U.S. October 1, 2015 Fraud Liability Shift milestone and the migration to chip cards.  Some retailers geared up for the fraud chargeback liability shift long before October 1st by upgrading POS software and hardware systems to accept the new EMV chip cards.  Most U.S. merchants are still sitting on the EMV sidelines and have not made the commitment to upgrade.  
 
When considering EMV acceptance upgrades retailers need to look at their total risk profile when it comes to fraud, security, and PCI Compliance.  The EMV chip card standard was developed as a way to minimize in-store fraud.  After October 1, 2015 card present merchants will be accepting more risk as transactions made with counterfeited EMV cards will now be the merchant's responsibility if it decides not to accept EMV chip technology at the POS.  The benefit of the investment in new payment system upgrades needs to outweigh the risk of fraud and customer perception for the merchant.    
 
Fraud and EMV in the Context of Risk
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Transforming the Role of Payments in the Digital Business

My mission at Forrester is to help ebusiness executives transform the role of payments from financial utility into an engine for customer engagement, revenue growth and improved customer experience.
 
A barrage of new innovation and business models are upending how consumers and businesses make and receive payments.  If merchants and businesses do not consider or implement these new innovations they risk losing customers and ultimately relevancy.  
 
Customer obsessed businesses can turn payments disruption into business advantage.  Success hinges on making technological and organizational shifts that turn the view of payments from customer transactions to an engine for customer growth.  
 
Businesses must consider the following challenges if they want to turn payments into customer advantage:
 
  • Embrace mobile and emerging payments
  • Gain more customer relevancy through collected payment data
  • Provide new tailored customer experiences and services based at point of purchase
  • Reduce risk and secure the shopping experience from data compromise and fraud 
  • Leverage payments for operational advantages
My role will be focused on how to make payments more operative and strategic through the lens of “Transforming the Customer Experience,” “Accelerating Your Digital Business,” “Embracing the Mobile Mind shift,” “Turning Data into Customer Insights.”  I look forward to expanding the aperture of these topics and working with you to transform the role of payments in your organization.