Does EMV Have a Place In A Mobile World?

Consumers everyday are being bombarded with offers to try new things with their mobile phones and their payment preferences. New payment applications, loyalty programs, and digital wallets are being presented to them, making it easier than ever to get and redeem coupons and pay with the convenience of their mobile devices. At the same time, consumers are also being bombarded by news of security breaches, which have shaken their confidence with respect to the safety and soundness of the payments systems. Gemalto VP Philippe Benitez believes that this  “information overload” makes it difficult for them to decide whom to trust and indicated where he believes Gemalto can step in to fill the void.

EMV: WHAT’S THE OPPORTUNITY?

When merchants typically think of innovation at the point of sale, payments is usually the last thing on their minds. Front of mind is the opportunity to create a new relationship with a consumer of which payment is a part, but not the driver.

Gemalto, which operates at the intersection between brick and mortar plastic and mobile contactless payments, thinks it can provide the bridge between physical and mobile so merchants and issuers can capitalize on the contactless payment trend.

THE “DIP AND PIN” RISK

EMV chips will require consumers to “dip and pin” their cards into POS terminals, leaving them in for the duration of the transaction, which is not as fast as swiping. Why, then, will consumers be willing to make this change in behavior?

“Consumers may see the transaction process to be much slower with the card dipped in the terminal. This is because when consumers swipe their cards, it never leaves their hand, and then they put it back in the wallet,” said Benitez. “It appears that the transaction has been completed, but it really hasn’t been.” With EMV, he added, they must leave it in the terminal, and then sign at the very end (“chip and signature”).

The seemingly slower “dip and pin” process, according to Gemalto data, is therefore likely to increase consumers’ appetite for contactless payment applications, as consumers would rather tap and pay than dip and wait.

CONTACTLESS EMV & MOBILE EMV

At the bottom of the above chart is a list of countries in which contactless has become “mainstream,” or more than 10 percent of all transactions. Those in white are countries that started EMV on contact and then moved contactless, and those in orange are countries that leapfrogged contact EMV and went primarily contactless. The merchant categorization of these transactions, however, was not indicated.

But right now, everyone is very fixated on mobile for reasons that have little to do with payment and more to do with benefits consumers will value. Why, then, are issuers bothering to put the extra money into dual-interface cards – shouldn’t they just jump right into mobile?

According to Benitez, this question hasn’t really come up among issuers. Rather, they are asking how fast they can get to market with card portfolios, and what more they can do with it on the mobile side to enable payments.

“It’s not a question of either-or, or leapfrogging EMV cards and going straight to mobile. It’s more of a question of how the issuers can develop a portfolio of payment methods that consumers will prefer to use,” said Benitez. “Mobile, whether it’s in the form of NFC, will not replace cards in the foreseeable future – not even in my lifetime.”

OVERCOMING NFC SKEPTICISM

Merchants have said no to NFC for a very long time. Why will they say yes now? The terminals are the same price with EMV and NFC capabilities, but why should they turn it on now when enabling that capability opens up a conversation with another set of players that they must now manage as part of the ecosystem?

Turning on contactless capabilities now, at the point of sale, does not require merchants to interact with any new players, said Benitez. When a consumer is going to pay with an EMV device – whether it’s a contactless card or mobile EMV over NFC – from the POS perspective, all of those transactions are pure EMV transactions. The merchant, by turning on contactless, gets access to the two-thirds of these additional form factors just by turning on the feature in the terminal. It does not create any more technical interactions with players that they are not already making.

But perhaps there are other players – the smartphone manufacturer, the mobile operator, the supporters of the NFC handsets. Merchants have the ability to accept payments in other ways – what are they exposing themselves to by turning NFC on, and are there enough consumers that want it to make it worth the trouble?

Merchants can choose to accept mobile EMV or not, said Benitez, but if they do decide to accept it, data shows that contactless payments do drive incremental spending.

The U.S. did have a lot of early issuance of contactless cards, yet the experience in the U.S. did not drive the revenue that it did in other countries. The difference, said Benitez, was that in the U.S., the contactless experiment that happened was called “contactless magstripe” data. It was a different type of contactless technology that aimed at using the acceptance infrastructure, making no change to it. It was deployed in a way that consumers were not educated to the fact that they had contactless cards in their pockets, and in many cases, they would take them out and swipe them instead. Even if they had been educated, the technology was not solving a problem for merchants or consumers. It was a bit before its time.

“The difference now is that we have an entire new ecosystem on the mobile side that is driving contactless payments, and a gigantic worldwide migration to EMV,” said Benitez. “The ecosystem is changing completely to provide both the acceptance and the issuance side with the technology that will enable contactless this time around.”

While many may still be skeptical about implementing NFC, there are currently 256 handset models available in the marketplace worldwide. The barriers to adoption are slowly coming down, said Benitez, with EMV terminalization, migration, and the NFC-supporting handset availability.

Major manufacturers like Samsung, Sony, and Nokia, already have flagship models that support NFC. Others are coming up with new solutions for NFC to work with certain smartphones.

CommBank in Australia, for example, worked with Gemalto to create a “smart” sticker that embeds an NFC solution for iPhone and Android devices. According to MasterCard data, tap active accounts in Australia that support contactless payments showed a 43 percent increase in net spend.

Contactless also enables other applications like transit (open-loop and proprietary), and access to events. And in terms of wearables, Barclays, for example, has created prepaid card bracelets that include EMV tags, being issued to any banked individual in the U.K. Users can make purchases up to £20 maximum, and it also provides access to different events in London.

“From an issuer’s perspective, this is a card account just like any other card account,” said Benitez. “By increasing the spend across all of the form factors, the issuers and the merchants are benefiting.”

HCE & BLE: HOW GEMALTO FITS IN

When it comes to other technologies that customers want to deploy, if there is demand for HCE specifically, Gemalto will make it available. But what Gemalto is doing behind the scenes in the meantime is analyzing all of these technologies cautiously.

“HCE still has some open questions regarding security for large commercial deployments, and we are working on them,” said Benitez. “We are still looking at it.” Benitez added that he believes HCE will drive NFC if deployed, because it uses NFC to communicate with the point of sale, just like the secure element does.

Elsewhere, with BLE and beacon technology, Benitez said that at some point, when a consumer has been prompted in-aisle to explore accessories based on an item they are looking at, they will be invited to pay for their merchandise. That’s where Gemalto fits in.

The wallets that make use of BLE to receive the coupons or promos can then link back to the secure payment mechanisms that the handset or mobile device enables to complete the transaction. The technology will therefore act as complementary.

Looking forward in the years to come, however, Benitez said that in general, “consumers need to have fewer clear and trustworthy choices available so that these technologies can really take off.”