Here we are at the start of 2019 and every business with a merchant account that accepts credit cards is waiting for the final dust to clear from the transition to EMV® (“chip”) cards and a new, potentially even bigger trend is on the horizon and coming fast. We’re talking EMV contactless and if you process credit cards, you’re going to soon be aware of its impact.
Think of EMV contactless (sometimes referred to as “tap-and-go”) as the perfect marriage of the security features of EMV technology combined with the ease, speed and convenience of NFC (near-field communications). NFC is the technology that allows your credit card to communicate with an NFC-enabled terminal at close range. It drives the functionality behind popular mobile payment platforms like Apple Pay and Google Pay.
EMV and NFC are not the same, however. They require different technology within the devices they communicate to – therefore not every device that is NFC-capable will be able to handle EMV contactless transactions. Similarly, not every EMV-capable device is capable of EMV contactless.
The Devices Required to Handle NFC at the POS
Credit card processing companies have been working with terminal manufacturers for years to ensure the latest processing devices are equipped to handle not only EMV but also NFC transactions. This means that many of the devices already in the merchant processing landscape are equipped to handle EMV contactless payments. Visa estimates that by the end of 2018, half the U.S. installed base of POS terminals were capable of processing using NFC technology. Currently, approximately 9 out of 10 terminals shipped by vendors are capable of processing both EMV and NFC transactions.
But the Recent Pain of EMV is Still Fresh in Our Minds
Unless you’re strictly a card-not-present business or an e-commerce merchant, chances are you remember the recent rollout of EMV as a less-than-joyous event. Card associations were slow to rollout EMV-enabled cards. Equipment manufacturers couldn’t ship sufficient quantities of EMV-capable processing terminals to meet demand. And then, when you’re finally set up for it, you (and your customers) discover the technology isn’t exactly speedy. Those delays had little to do with the payment gateway – there just happens to be a lot more going on with an EMV transaction. The chip is now sending information that is encrypted which takes considerably longer to deal with than the unencrypted information on a magstripe. Add to that the confusion many cardholders experienced associated with chip technology, and the co-existence of magstripe and EMV transactions and you have a formula for frustration.
Transaction times were as high as 70 seconds for poorly-configured terminals. Most credit card processors, who scrambled to ensure smooth acceptance of EMV for their merchant customers, now were dealing with disgruntled merchants who were tired of hearing cardholder complaints about transaction times. Although OpenEdge’s technology drove EMV transaction times down to an average of 17-25 seconds, it was still slower than magstripe speeds. And time is definitely money. It has been published that for every second of transaction time, 12 customers abandon their purchase. You can imagine the fallout of a transaction taking almost a minute to process.
Visa didn’t like this. OpenEdge wasn’t crazy about it either. However, it is estimated that EMV card technology has been responsible for up to a 70% decrease in card fraud. That is clearly worth some processing time, but how much? Merchants wanted an answer to the question, “How can I accept credit card payments securely, but not lose customers who won’t wait for the transaction to process?” Both Visa and OpenEdge responded the same way: embrace the technology – and improve it.
Visa’s response is to deploy hundreds of millions of EMV contactless cards by the end of 2021 (see chart below). Other large card issuers, like Chase, are following suit, providing EMV contactless cards for customers whose cards are expiring and issuing EMV contactless debit cards to customers beginning later this year. Thanks to an exclusive agreement signed in 2013 between Chase and Visa, Chase is the largest distributor of Visa cards, servicing over 93 million cardholders at the end of 2018.
OpenEdge meanwhile, responded with their proprietary EdgeExpress integrated payments solution, which cut EMV processing times almost in half, resulting in a transaction processing approximately 3 seconds faster than most of our competitors. The good news? OpenEdge customers will see similar speed gains when processing EMV contactless as well.
It’s All in the Cards…and There Are a Lot of Them
As you can imagine, all this results in cost. Cost to card issuers who need to manufacture new cards to support the EMV contactless protocol. Cost to card processors who need to dedicate the development resources required to ensure their solutions accommodate the technology. Cost to merchants, many of which need to purchase new equipment to process the new cards. This makes Visa’s commitment all the more impactful. As referenced in the chart below, the cost of an EMV contactless card is approximately $1.40 to manufacture. So those 230 million EMV contactless cards Visa plans to deploy by the end of 2021 represent an expense to Visa of around $322 million, an expense Visa can’t pass on to cardholders. Yet, card cost wasn’t much of a deterrent in Australia, the UK and Canada, where contactless has long been a well-established alternative to low-ticket sales formerly made by cash.
How Will Cardholders Like All This?
Merchants who take credit card payments want reliable, cheap credit card processing. The credit card processing company is concerned with security and controlling card processing fees to remain competitive and provide value. But – at the end of the day – as with most emerging payment processing trends, it’s up to the customer to change their behavior and endorse the advances in technology. And that’s why many industry observers see EMV contactless as a can’t-miss. The advantages to the cardholder are significant:
- Security – the chip on a contactless card communicates with the POS device through short-range wireless technology by virtue of an embedded antenna. Upon tapping a contactless card, a cryptographic code is created that is unique to that specific transaction.
- Speed – The aforementioned speed benefits of contactless are ideal in fast-moving industries who accept credit card payments like sporting events, convenience stores and quick-serve restaurants.
- Convenience – Much of the merchant payment processing experience for customers comes down to how quickly they can pay and get out. Credit card processors spend untold hours working on ways to help improve the customer checkout experience. Contactless results in a checkout process that almost couldn’t be easier or faster – just tap. And go. Next to retina scanners or a microchip embedded in your hand, that’s about as easy as it can get.
Benefits Up and Down the Payments Ecosystem
EMV contactless provides benefit to the businesses that accept payments as well as the merchant service providers who furnish their payment processing solutions. Merchants can deliver much faster, easier cutting-edge payment options to their customers, improving the shopping experience. Payment processors foresee EMV contactless as a popular and stable platform that delivers the transaction speeds and advanced security features for their customers accepting credit card payments. Even credit card companies, who typically bear the higher costs of producing contactless cards, aren’t hesitant to support the technology given the expected resulting reduction in fraud expense. That’s remarkably close to a win-win-win-win.
OpenEdge Now Fully Supports EMV Contactless
Whether you offer credit card processing services to your customers or you’re a software developer looking to add merchant credit card processing solutions to your software, OpenEdge can help ease your business into EMV contactless. With some 200 million more contactless cards expected in the U.S. within the next 24 months, now is a good time to prepare.