by Michael Dattoma
Q: Just as I was trying to get my hands around how to accept EMV cards at my store for the October 2015 deadline, Apple introduces Apple Pay. Can you explain how Apple Pay works and how I can prepare my stores for all these new payment types?
Michael Dattoma: I truly believe Apple Pay will be a game changer in retail payments. In a sea of payment solutions that have flooded the market over the years—with little adoption—Apple Pay is a solution from a company that has mastered simplicity with a brand that consumers trust.
Let me start off my giving you a little primer on how Apple Pay works and then I will get into how it impacts you, the retailer, especially at the point of sale (POS) in terms of new hardware/software requirements.
To activate the Apple Pay service on a new iPhone model, the consumer scans their credit card with the phone’s camera, which picks up the account number, name and expiration date. This information is then securely transmitted to Apple, along with Visa/Mastercard, or Amex’s payment network. Once the card info is cleared for security and eligibility, a secure “token” is sent back to the iPhone, where it is held in the secure element (think locked-down section) on the iPhone. This token will be in the same format as regular credit card numbers, and a unique token is assigned to each and every iPhone. Apple Pay uses NFC (Near Field Communication) to link the iPhone to the retail POS. That means that all the customer has to do is hover the phone next to the NFC chip reader instead of swiping a magnetic strip.
What about security? What if you lose your iPhone? If a phone is lost, Apple can deactivate the token used on that phone and the consumer does not have to cancel their credit card. Also the NFC chip on the iPhone will not be able to send/receive a transaction until the consumer activates Apple Pay with their phone’s security pin number or the touch ID using their fingerprint.
The success of Apple Pay is all about adoption and with the use of the token, enhanced security and the Apple branding, people who would once never consider their phone for mobile payments will perhaps be intrigued and motivated to join the mobile payments revolution. Apple is not charging the retailers or the consumer any additional fees when they use Apple Pay, nor do they share any of the purchasing history on Apple Pay.
So what does this mean to the retailer, and how do you get ready for Apple Pay?
First and foremost your POS must be NFC-ready, which means having an NFC chip reader integrated to the POS terminal. It is this reader that allows the iPhone to transmit the token to the payment processing platforms. The token is then authorized for the payment amount and returns an approval to the POS. The great news is that no pin number is required, which makes it far more seamless for the consumer. In addition, NFC transactions are treated as “card present” transactions which allow them to receive the best interchange rates for processing with Visa/Mastercard (See my post Explaining Credit Card Interchange Plans).
So retailers will need to have an NFC reader—a new hardware element at the POS—and this comes at a time when retailers also need to have the ability to accept EMV chip and pin cards by October 2015. Since Apple Pay is now another catalyst calling for additional hardware at the POS, it would make sense for retailers to kill two birds with one stone and implement a solution that will allow them to accept both Apple Pay and EMV chip and pin cards, along with any other form of payment that may grow out of the NFC/mobile payment wave. These unified solutions are available, solutions that have anticipated the need to “future proof” the POS.
To take the scenario a step further, since both Apple Pay and EMV chip and pin are creating disruption at the POS, it may be a good time for retailers to evaluate their entire POS strategy, not just payments but inventory control, CRM, omni-channel, etc.—it could be an opportunity to refresh the store’s technology.
In summary, these changes require a plan to update your store’s technology sooner rather than later. Apple Pay is going live within weeks, and EMV acceptance is mandated by October 2015. Apple Pay is one of many reasons why the time may be just right for retailers to evaluate their overall store technology needs.
If you have any additional questions on Apple Pay, EMV or POS software technology, you can reach Michael at michael@retailmerchantservices.com.
by Michael Dattoma
Q: I’m facing a software upgrade that will require me to change all my hardware and operating systems. I find it increasingly difficult to manage our systems internally and implement the tools I really need to run my business. For example, we’re trying to run iPads in our stores and still cannot get them to work properly after six months of time and money. Is there a better way?
A: I recently wrote an article about preparing for the coming “retail technology storms” in which I discussed some similar issues that are causing retailers great stress and frustration. Business is tough enough as it is, the last thing you want to worry about is technology.
Current issues, like EMV chip and pin card acceptance and installing new hardware for compliance by October 2015 are plaguing retailers. Add that to the fact that many are sitting on old legacy point-of-sale systems that cannot yet integrate chip and pin technology, plus the end of support for Windows XP, which means having to upgrade hardware to migrate to Windows 7 or 8.
Many independent retailers are trying to bolt new technologies — like iPads — onto older legacy systems and finding it frustrating and costly. Most retailers are still running their stores and retail operations in separate silos that don’t talk to each other, which make omni-channel efforts (merging of retail and e-commerce) all but impossible.
If you implement EMV chip and pin acceptance on a legacy POS you are investing more money in older, dated software technology. If you are facing a POS upgrade to get to a new version to support EMV, you will most likely need to replace all your hardware. These are all painful processes. Honestly, it’s enough for a retailer to wave a white flag and cry “Uncle!”
The good news is there is a new course that retailers can take in these stormy seas of technological change. Look at it as a technology reset, leaving behind the old legacy world of painful updates, upgrades, costly maintenance, administration and on-premises management behind. You can take your retail technology into “the cloud” and get out of the IT business so you can focus on your core business, retail.
Rather than having to manage all this change on your own (EMV, PCI, mobile, omni-channel and software upgrades), when you move your business to the cloud you have a partner who is handling all this as a part of your monthly service. You can respond to the demands of your customers with technology that brings you closer to them, and spend your time focusing on what is important.
Interested in hearing more? Contact me at michael@retailmerchantservices.com.
by Michael Dattoma
Q: I am inundated with changes and investments that need to be made in my stores. With “EMV” Chip and Pin, “Mobile POS,” and “Omni-Channel” retailing being expected… Any suggestion on how I can best cope with all this technology change when I don’t have a big IT team?
A: It can be overwhelming. The pace of change in retail technology is both exciting and daunting for retailers. There are some major storms brewing, storms you are now feeling, that are causing a tremendous amount of disruption in specialty retail. It is critical that you are aware of these combined forces, how they will impact your store’s future and how you can best prepare and leverage them.
First and foremost, the EMV “chip and pin” technology will need to be implemented at all U.S. stores by October 2015. If it is not, the retailer will hold liability for fraudulent transactions. That is a major shift of liability–from the banks to the merchants.
So the first storm is handling EMV, and this will require new POS hardware and perhaps software at your stores. As you are experiencing, many legacy systems are still not EMV ready. In fact, many legacy systems are still struggling with PCI compliance to protect from a data breach.
But there is more immediate concern, creating a perfect storm for retailers that you highlight. If you are currently sitting on legacy technology, systems that were developed over 15 years ago, you cannot do many of the things a modern retailer needs to do to survive in this new omni-channel world.
Your customers demand that they be recognized and serviced across all channels—store, web and mobile. The days of having walls separating channels are over, and if a retailer does not adapt to this storm they are at a severe competitive disadvantage.
Customers today want to buy online and be able to return to the store, buy online and pick up at the store and use loyalty points and gift cards across all channels. You are not omni-channel if your systems cannot support this unified sharing of data.
Another impact of older legacy technology is that it is difficult to use mobile points of sale, like iPads, in the stores because that old technology is not designed with mobile devices in mind.
I bring up all these different “storms” because they are all creating disruption within current store technology at the same time.
Since investments need to be made to address these different, yet related issues, it is a perfect catalyst for moving off your legacy system to handle all these changes at the same time. This can be accomplished when you invest is a POS system with an architecture that is designed for the mobile, omni-channel and of course the changing payments world (EMV, NFC, etc.).
With lower-cost cloud POS systems removing the need to maintain heavy IT burdens, the lower cost of iPads, omni-channel tools allowing you to share data between store and web, and payment technologies that can handle all payment types (EMV) in one device, it has never been easier to be sheltered from the technology storm.
Michael Dattoma is President of The Bart Group Retail Merchant Services. He is an expert in Cloud POS, Mobile and Omni-Channel technology. If you would like more information he can be reached at michael@retailmerchantservices.com.
by Michael Dattoma
Are you giving your customers a cohesive brand experience between your stores and e-commerce, or are you still in denial?
Q: My e-commerce platform and retail store systems are not in line with each other. Any advice on how to achieve omni-channel retailing for an independent specialty store?
A: The word omni-channel is getting much attention these days, and although it may just sound like the latest buzzword, it is absolutely critical that retailers understand this concept. Omni-channel means providing the same customer experience across all channels, with shared inventories and complete customer data transparency across your entire retail business.
Many retailers think they are omni-channel simply because they have multiple channels, like stores and e-commerce. This is a misconception. Omni-channel is different from multi-channel because you can have several sales channels without any of them relating to each other.
A quick acid test for omni-channel retailing: Do you have total visibility of customer history across stores and e-commerce? For example, if a customer walks into your store, can the staff easily view all the purchases he made on the web and use that information to make recommendations? Can loyalty points or a gift card balance be used in the store as well as online? Does the customer have options for order fulfillment, such as in-store pick up for a web order?
This may sound like a tall order, and if you are using outdated legacy technology, it is. In many cases, retailers will need a ground-up overhaul to get their operations to speak the omni-channel language.
The great news for retailers is that by operating physical stores, you have a strategic advantage over pure e-commerce sites. Stores can offer an experience that a website could never duplicate. However, while brick & mortar stores are the life force for customer engagement and offer that critical human touch, retailers must deliver an all-encompassing brand experience on the web as well.
There have been great technological advancements toward implementing these omni-channel strategies, at a fraction of the cost compared to 10 years ago. The cloud and the centralization of all data across channels is certainly one of those innovations.
If you are interested in learning more about omni-channel retail initiatives, please contact Michael Dattoma michael@retailmerchantservices.com.
by Michael Dattoma
Q: Do I need to accept credit cards with a “chip” at my stores? I’ve been told there will be a deadline to do this. My equipment only accepts the magnetic swipe cards and I don’t see many “chip” cards.
A: Great question—there’s a lot of confusion about this. There’s a big shift in the payment space in the works called EMV (Europay/MasterCard/Visa), and it will be firmly hitting home by October 2015. Commonly known as chip and pin cards, the chip refers to the integrated circuit built into the card, and the pin is familiar ability to input a pin number to secure the transaction. All merchants in the U.S. will have to be very familiar with the impact of chip and pin or face consequences. Let me explain.
Chip and pin is already the standard in Europe and Canada. Magnetic swipe cards, which the majority of Americans carry in their wallets, are easily forged and are the cause of a great deal of fraud. Much of that fraud is absorbed by the banks that issue the credit cards, and they want to reduce that exposure by implementing chip and pin.
Why now, you ask? The more secure EMV technology has had many starts and stops here in the U.S., with many bank card issuers having offered “smart” cards with chip technology, but that’s been a drop in the bucket in terms of acceptance and impact. The issue has been cost: it is very expensive for the banks to change over all the magnetic swipe cards, and upgrade their systems to accept this technology.
All of that is about to change when banks shift the liability in credit card transactions to merchants by October 2015. Yes, you heard that right. If the merchant doesn’t have a chip and pin-capable POS system, the liability of fraudulent credit card transactions will fall firmly on his shoulders. That is the huge lever the banks will use to get merchants to make the necessary investment to purchase EMV-equipped terminals and POS systems.
The banks will still issue cards that have both the magnetic swipe and the embedded chip and pin technology. They don’t want a situation where a transaction cannot be processed if a merchant does not have the EMV equipment. However, if the card is used with the magnetic swipe, the liability will fall on the merchant.
These liability shifts have already taken place all over Europe, so this is nothing new, but it’s now going to have teeth in the U.S. market. Credit card fraud totals $8.6 billion a year so the banks are eager to roll out EMV cards and force merchants to upgrade their systems to accept these cards.
So as stated, October 1, 2015 will be the EMV “D Day” when all merchants that accept credit cards must have the ability to accept EMV cards in the U.S. or they will be liable for fraudulent charges. Since this will require a new investment in hardware (and as frustrating as that might be), it may be a good opportunity to think broadly about your point-of-sale in general and use this as an opportunity to enhance your POS system beyond just becoming EMV compliant.
This can be an opportunity to upgrade outdated retail technology to improve how you engage with customers, track your inventory, improve reporting, run mobile transactions on your sales floor, deliver omni-channel (store and web) integration, address PCI compliance, etc.
If you would like more information on EMV technology, or have any questions related to point-of-sale, you can reach Michael Dattoma atMichael@retailmerchantservices.com.
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