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Mobile payments may not be widely available for several years, but merchants, processors and card networks are already anticipating big changes in consumer spending patters — and their own business models.
October 14
An impending deadline, several security initiatives and the ongoing adoption of contactless cards have payment terminal companies trying to position themselves for an anticipated surge in demand for point of sale systems.
Christopher Justice, Ingenico SA's president for North America, said merchants are "at the start of a refresh" cycle. The French terminal maker announced last week the first of several planned management revamps to prepare for the U.S. market's growing appetite for updated payment terminals.
He said that the most tangible factor is a July 1, 2010, deadline requiring merchants to use terminals that meet the Payment Card Industry Security Standards Council's PIN entry device requirements, a security format aimed at stemming fraud at the point of sale.
Justice said that this is prompting many customers to reevaluate their entire payments setup.
"If you're in the middle of going through a refresh of your terminal estate, it only makes sense to look at the other available technologies," he said. "The incremental cost is not all that significant," and few customers want to update their systems repeatedly.
Though some large retailers have already installed terminals that meet the PED standard, many more have not, creating a large opportunity, Justice said.
"There's definitely a lot of momentum in the industry right now," said Avivah Litan, a vice president and distinguished analyst at the Stamford, Conn., market research company Gartner Inc. "There are a lot of large merchants … making purchases now."
Besides the PED standard, Litan said, merchants are starting to consider security measures in response to several prominent data security breaches. One topic generating significant buzz now is end-to-end encryption, which encodes payment card data the moment it is swiped through a terminal.
Other important technologies are chip-and-PIN, which is becoming the dominant security format in several international markets, and dynamic authentication, which can work with the contactless payment cards that are already widely available.
All these are forcing retailers to plan far into the future, and many expect guidance from the terminal vendors. Merchants need to know that the investments they make today will be able to handle upcoming changes in payment technology and security, she said.
"The merchants know that there are going to be changes," Litan said, "The manufacturer has to have a blueprint for them."
Justice said that buzz around encryption is "at a fever pitch" right now and could spark interest in other security methods.
Ingenico's new management team could help position the company to meet this demand, he said, and the vendor plans several other personnel changes in security, contactless and mobile payments.
It made several changes in its North American management team: Hal Hanna assumed the newly created post of senior vice president of strategic initiatives; Gregory Boardman joined the company from rival Hypercom Corp. as vice president of product development; Svy Nekrasas assumed the new post of vice president of marketing; Philippe Piovesan has moved from the company's headquarters in Neuilly-Sur-Seine, France, to be vice president of operations; Bernard Frey, also recruited from Hypercom, is now director of indirect sales for the banking channel, and Mark Little has been hired from Kohlberg Kravis Roberts & Co.'s First Data Corp. unit to be director of sales for managed services.
Ingenico's rivals are also trying to capitalize on merchants' interest in new terminals.
VeriFone Holdings Inc. is already offering software that encrypts card data at the point of sale, and its Web site has a countdown clock to the PCI PED deadline.
Scott Henry, VeriFone's director of product management for North America, said "the main motivator for the next several years, of course, is going to be security." After that, as more payment-enabled mobile phones come to market, more retailers will be interested in contactless payments.
Brian Riley, a research director in the bank cards practice at TowerGroup, the independent research firm owned by MasterCard Inc., said that many retailers are due for an upgrade. (MasterCard said last week it is selling TowerGroup to Corporate Executive Board Co.)
"The average American equipment is pretty old," he said. "In many cases, they're not compliant with the latest PCI standard."
Retailers are agreeable to adding features to terminals because "they're not super-high-priced items," he said, and replacing terminals outright rather than updating them is often the best option.
Ingenico is positioning itself at the right time to take advantage of this emerging demand in the retail world, Riley said. "My sense is, they're a little bit ahead of the curve but not much."
