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Wednesday, 11 February 2015 22:46

Retailers must upgrade equipment to accept new card, mobile payment technology

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A new style of credit cards and debit cards designed to reduce fraud will require retailers to upgrade equipment by this coming fall to accept customer payments, or potentially get stuck with the liability for an incident.

To make electronic payments more secure, credit card and debit card companies VISA, MasterCard and American Express intend to replace their cards that use a magnetic strip on the back to store a user’s data. In their place will come cards embedded with an electronic chip read by the card reader at a retail checkout and used with a customer’s personal identification number, a system that’s been in place in Europe for years.

The change should make it “much more difficult” for a thief or hacker to copy customer data during a retail purchase, said Scott Montgomery, manager of the security practice at Open Systems Technologies Inc. in Grand Rapids.

The change comes amid the emergence of Apple Inc.’s Apple Pay and Google Inc.’s Google Wallet that enable users to pay for transactions using their smartphones. The technologies are altering how consumers pay for the goods they purchase.

“We’re in a huge period of change,” Montgomery said. “Everything is kind of evolving.”

Montgomery himself is an Apple Pay user who likes the convenience and security it offers. He uses either his smartphone or — when a retailer does not accept Apple Pay — cash to pay for a purchase and welcomes the change in the payment system for electronic transactions.

“There’s no excuse for a mass breach of credit cards to take place at the retailer. There’s absolutely no excuse for that,” he said.

The change will require retailers, if they have not already, to upgrade their card readers to accept the new chip-embedded credit cards and debit cards that are coming out in October, as well as payments from smartphones.

Montgomery likens what’s ahead to the transition away from carbon and paper credit card receipts more than three decades ago.

“It’s no different,” he said.

The cost of the new card reader isn’t too expensive for retailers, said John Mayleben, senior vice president of technology and product development at the Michigan Retailers Association. Depending on the features, a new card reader typically will cost less than $500 per cash register or payment terminal for the simplest version, and more for devices with greater features.

Many large retailers and national chains are now upgrading or already have upgraded their card readers, Mayleben said. He’s hearing now from small retailers who are learning about the changes and have “lots of concerns” about what’s ahead later this year. He expects that many small retailers will wait as long as they can before buying the new equipment.

“Retailers don’t like to spend more money than they have to, so they don’t upgrade until they have to,” Mayleben said. “You have to calculate the ROI.”

Credit card companies will provide a transition period where retailers can accept cards with either a magnetic strip or a chip. The companies are not requiring retailers to adapt, although “eventually, the strips are going to disappear,” Montgomery said.

If a retailer or company that accepts payment by credit card or debit card opts not to adopt the new chip technology and upgrade its equipment, the company may incur significant liability for fraud if a data breach occurs from a transaction at the business, said attorney Jennifer Puplava, a partner at Mika Meyers Beckett & Jones PLC in Grand Rapids.

The card companies are essentially passing along the liability for an incident to the retailers that do not adapt, she said.

“What they’re doing has a lot more punch. There’s going to be a liability shift to the party that has the lesser technology. That could be a big change. If they do not adopt the technology, their risk certainly increases dramatically,” Puplava said. “The party who’s made the investment in this new technology is going to be protected from that financial liability. You may have to look at it as an investment in your business and also as a safety precaution.”

Taking a proactive approach and upgrading now could prove less costly for a business. If they do have an incident, the costs of the liability would far exceed the price of buying and having new card readers installed, Puplava said.

“It could be a large risk that they’re taking if they don’t upgrade to this new technology,” she said. “It really comes down to a question of do they spend the money now to upgrade to a technology to get in compliance with the credit card issuers, or do they take the risk that there will be no security breaches and end up paying money down the line if there is some sort of breach.”

That consideration is just one decision retailers face this year. They may also want to consider accepting Apple Pay, Google Wallet or another electronic payment system that uses smartphones.

A growing number of large retailers are accepting payments via smartphone, and financial institutions are following suit.

Kalamazoo-based Consumers Credit Union recently began offering Apple Pay for consumer credit and debit cards. Consumers Credit Union, with 61,000 members and 14 offices, was the first in Michigan to offer Apple Pay, although several large banks with a presence in the state — PNC Bank, Fifth Third Bank, Huntington Bank and Bank of America — do as well. Meijer Credit Union also recently signed on to Apple Pay for debit cards.

In the first few weeks of January, Consumers Credit Union had nearly 100 members adopt Apple Pay, said Chief Operating Officer Scott Sylvester. The credit union wants to eventually extend the service to debit cards and credit cards for small businesses, perhaps at some point during 2015, he said.

“We want to be on the leading edge of technology in our industry,” Sylvester said. “There are always opportunities to push the envelope.”

Consumers Credit Union began offering Google Wallet about a year ago.

Despite becoming an early adopter of Apple Pay, which requires a user’s PIN or fingerprint to approve a transaction, the credit union expects members to sign on slowly, given the limited pool of potential users who have an iPhone 6 that’s embedded with the technology, Sylvester said.

In time, however, Apple Pay, Google Wallet and other mobile payment services that use smartphones will become the norm, he said. Apple Pay and the technology it uses “changed the whole ballgame,” he said.

“It’s going to be a little bit of a slow adoption, but it certainly has a cool factor for those that are interested in it, and it certainly has a convenience factor to be able to do transactions,” Sylvester said.

Montgomery at OST believes the growth of mobile payment services will follow the growth of smartphones that have become a fixture in the daily routines of many people.

“Like it or not, our smartphones are going to be even more central to our world. That’s just the way it’s going to be,” Montgomery said. “I’ve yet to see some implementation of technology that has not had some connection to smartphones. The credit card technology is a logical fit to that.”

Smartphone use grew to 66 percent of U.S. consumers in 2014 from 19 percent in 2009, according to Forrester Research. From 2014 to 2019, mobile payments made in the U.S. will grow to $142 billion from $52 billion, Forrester projected last November.

The growth of smartphone use for mobile payments for purchases merely follows the continual evolution of the digital age, said Tom Trebilcock, who oversees mobile and emerging payments for PNC Bank. As more people begin to sign on to use a mobile payment service on their smartphones, retailers and others will need to follow suit to keep up with consumer demand, he said.

PNC began offering Apple Pay for consumers soon after the service debuted in October 2014 and will soon expand it to small business debit cards and credit cards. The service so far has “outstripped our expectations,” Trebilcock said.

For retailers and others, that means a new way of doing business and eventually adopting the new technology, he said. Even if small business owners are not users of Apple Pay to make purchases, they need to look at it to accept payments from customers.

Since they already need to update terminals to accept chip-based cards, they may as well consider accommodating Apple Pay as well, Trebilcock said.

“If it’s not already on their radar, it should be on their radar as consumers of Apple Pay,” Trebilcock said. “The more customers that use it, the more merchants will offer it, the more people will accept it. It’s virtuous circle.”

Read 4377 times Last modified on Sunday, 15 February 2015 16:25

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