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Time to Embrace Frictionless Payments?

Over the past year, U.S. consumers struggled through the clunky, multiscreen experience that is an EMV transaction. Consumers waited in long lines to insert a chip-enabled card, cycled through a series of validation screens and made small talk with the POS support staff while their transaction processing times took in excess of 15 seconds. With the U.S. now officially the largest EMV market in the world, it’s time for the industry to move away from the clunky EMV experience towards a frictionless alternative.

One year later – A Litany of EMV Pain Points in the U.S. Market

The EMV roll out was clumsy, expensive and failed to consider the customer experience specific to the U.S. EMV segment. As a result, the first year of implementation left merchants, processors and customers shaking their heads and reciting a litany of pain points, from slow transaction times to multiple screens to the lack of education for workers supporting POS terminals. The commonly identified pain points are:

  • Security – Signature Profiles
    Even though an EMV card is more secure than mag stripe cards, the industry still uses signature profile cards – which do not require a PIN – to fully secure the transaction. Meaning, if a card is stolen, it can still be used at merchants who allow signature profile cards. Some retailers, such as Walmart and Target, have issued PIN profile cards and have started forcing customers to use their PINs to complete transactions.
  • Security – Online Transactions
    EMV cards add no additional security for online transactions, which are growing phenomenally. Visa and MasterCard have put forth efforts to provide online security, but few have adopted it.
  • Costs
    EMV cards are expensive to produce, about four times as much as mag stripe cards. With the replacement cost every three to five years, card lifetime costs increase significantly on a per account basis for the bank/issuer.
  • PIN Management
    The PIN update process can become more complex as you introduce for various scenarios, which confounds the overall customer experience. For example, in case of offline PIN configuration, a customer may need to go to a EMV-enabled ATM to update the chip with the new PIN.
While market players work to address these concerns, a more fundamental question remains: What will the future of EMV look like? Visa and MasterCard have rolled out U.S.-specific chips through Quick Chip and M/Fast Chip to reduce the number of steps required to complete a transaction, such as letting a customer remove the card while a transaction processes. However, just a year into adoption and liability shift, the entire U.S. EMV experience already seems outdated with respect to alternatives that enable a more efficient, frictionless customer experience.


Growth of Mobile Payments

The continued growth of smartphone adoption in the U.S. presents an opportunity for mobile payments to displace EMV as a more secure and frictionless option for U.S. consumers. The graph below shows growth of mobile payments over eCommerce PC. Once customers work through the initial setup, they can process a transaction in less time with fewer steps than today’s EMV card transactions.

Benefits of mobile payments include:

  • Improved customer experience – Mobile payments are effortless at POS: Customers hold their phones close to the POS device with their thumb on the touch ID to complete transactions. With no card handed to a person at the register, this avoids fraud at stores and restaurants.
  • Trendy and spreading – Millennials are most likely to switch to mobile payments and help drive the conversion. They use their phones for more reasons than other age groups, and view mobile payments as just another smartphone feature, like the camera or GPS, and not significantly different than shopping online.
  • More secure – Mobile payments are as secured or more than EMV. They use the same secured element, but mobile payments use touch ID (fingerprint) to perform transactions. The tokenization of the card number adds another security layer.
  • Transaction economics – Because the customer owns the phone and uses existing card to enroll in mobile payments, there is no cost to the bank or issuer. In the future, banks could renew digital cards without replacing physical cards – removing this cost. As newer terminals come with contactless capability and more merchants support mobile payments, banks benefit by promoting mobile payments to their customers, because they can save on card manufacturing costs as physical cards become unnecessary.
  • Embedded customer service – Mobile devices, networks, the cloud and analytics are converging to create new possibilities for merchants to enhance the shopping experience. Mobile payments are key to this new digital world: They replace the basic input and payment acceptance device at the POS with a device that provides two-way communication with customers that tightly couples to their smartphones. Mobile technology is powering dramatic changes, and there are many more to come.


Mobile Payments as a Frictionless Alternative

More than two-thirds of U.S. adults now own a smartphone, and this figure continues to grow. This ubiquitous adoption of smartphones also sees them used for an increasing number of banking and payment activities. Smartphone ubiquity means that mobile payments will eventually displace EMV as a more secure, frictionless alternative.

The POS transaction will be a near-term focus for this mobile-driven revolution in retail. The frictionless approach gives merchants a chance to connect with consumers in their stores more effectively, while also holding the potential to provide seamless connection points and data aggregation throughout the payment cycle, including consumers, ISOs, issuers, acquirers and processors. In the long term, the consumer benefits from a seamless experience, far removed from today’s clunky EMV card transactions.


References

  • A New Specification Enables a Fast Dip for EMV and Speeds EMV Certification.- Blog from Payment Journal
  • The Mobile Revolution: Reshaping Customer relationships. Research Brief from Mercator advisory group
  • Technologies for Payment Fraud Prevention: EMV, Encryption and Tokenization: White Paper from Smart Card alliance group

 
 
 
 
 
 

About the Author

Bryce VanDiver

With a career spanning over 13 years, Bryce is a Managing Principal at Capco in the Payments sector. Solutions-focused and a strong leader, he has carved out a niche in steering business transformation and complex change initiatives to deliver projects for financial service organizations. Bryce is a proven team builder who has achieved success in the implementation of target operating models, solution architecture and IT strategy while leading integrated and cross-functional teams.

Nitin Prabhavalkar

Over 15 years of combined financial industry & consulting experience focused on large scale Business & IT transformation and execution of complex, large-scale improvement initiatives with significant work and domain knowledge of Credit Cards & Payments.

 
 
 

The content and opinions posted on this blog and any corresponding comments are the personal opinions of the original authors, not those of Capco.