Payment Device Manufacturers See Opportunity in Chip and PIN Mandates

The big card associations are putting pressure on merchants and merchant acquirers to get on board with international chip and PIN card payment standards or face a major loss of business and increase in liability for noncompliance. Suppliers of the tools that enable point of sale, contactless, or NFC payments are sniffing opportunity, and are actively touting their technology and entering into partnerships in an attempt to sell smooth compliance.

"You won't be able to buy a non-EMV [magnetic stripe] ready payment device, and the [card association] mandates have a lot to do with that," says Rick Olglesby, a senior analyst with Aite Group.

Since most merchants in the U.S. still don't accept EMV payments, there's a lot of buying and terminal upgrades on the way. That's big news for merchant terminal manufacturers such as Ingenico (ING:EN Paris), Equinox and VeriFone (PAY), which have begun supplying terminals that can accept EMV payments before they are routed to processors.

These firms all sell EMV capable terminals in other markets, and some, such as Ingenico, are lining up new technology and partnerships to move terminals in the U.S. "If an acquirer in the U.S. is not placing EMV and NFC capable devices in the marketplace, they are doing a disservice to the merchant," says Bernie Frey, a senior vice president of acquirer sales, Ingenico, North America.

Ingenico just reached an agreement with POS Portal, a distributor of point of sale (POS) terminal modules. POS Portal will sell Ingenico's newly updated Telium series POS product, which includes support for near-field communication (NFC), other contactless payment technology, EMV and magnetic stripe card payments, for direct sale and sales through its independent sales organization in the U.S. Ingenico this week also reached an agreement with Vantiv, a payment processing firm, to couple Telium with Vantiv's point-to-point encryption security product as part of Payment Card Industry Data Security Standard (PCI DSS) compliance.

Frey says the firm's moves come as the card association mandates accelerate EMV migration after years of talk and speculation about when such a migration would happen. "The payment processors and ISOs are moving very quickly to EMV capable devices, almost surprisingly quickly. After the announcements from Visa (V) and MasterCard (MA) and the other card associations, EMV is coming to the U.S. Everybody gets that."

EMV refers to Europay MasterCard and Visa, or a payment standard that generally replaces the magnetic stripes used by most U.S. credit cards with embedded chips to authenticate payments. EMV is old news in Europe and most of the rest of the world, where it's been used for years. But the U.S. migration is just starting, following a long stagnation over who should bear the cost of terminal replacement. The card networks have issued mandates with rolling deadlines for various stages of compliance ranging from as early as later this year to 2015 for both acquiring banks and merchants to adopt EMV.

The carrot is reduced PCI DSS compliance pressure in the form of less frequent audits; and the stick is added fraud liability for acquirers or merchants who don't comply. Large retailers such as Wal-Mart (WMT) are pressuring the U.S. to move toward EMV standards, citing concerns over fraud risk if the U.S. is the only major payments market that doesn't use EMV cards. And new payments innovation is also playing a role: as terminals outfitted to accept mobile payments enabled by NFC get shipped, EMV point of sale capabilities are getting shipped at the same time.

Among other terminal providers, VeriFone sells NFC-enabled and EMV-ready products through its VX series. Security is built in via encryption of card data, and the products include integrated contactless capabilities for mobile payments.

Equinox's L5000 series and T4200 product also support NFC and EMV payments, as well as signature capture. The company also offers merchant activated terminals that connect directly to a host processor. The firm changed its name to Equinox from Hypercom following Hypercom's sale of its U.S. terminal manufacturing business to Gores Group, a private equity firm. VeriFone purchased most of the old Hypercom's international business.

"The big difference is the mandates. We have some hard deadlines here in the U.S….and the [early card association] 2013 deadlines got people talking about EMV," says Will Rossiter, a senior vice president at Equinox, who contends the firm is positioned for the U.S. migration given its work in other recent EMV migrations in Canada and Mexico.