Retailer’s Guide to Understanding EMV Chip Acceptance Solutions
By Xavier Giandominici, FIME America
The U.S. is migrating to EMV chip technology to reduce counterfeit card fraud and promote global interoperability. And though the transition is more than three years in, many small and midsized merchants, VARs, ISOs and ISVs are only starting to learn about the EMV standard and beginning implementation project plans.
A recent study shows that almost 50% of small merchants were unaware of the upcoming fraud liability shift, an incentive set by the payment brands to drive the migration. The shift, set to take place on October 1, 2015, switches responsibility for any fraud resulting from a payment transaction to the party using the least secure technology. For the merchant community, this can mean taking on additional fraud losses if they do not upgrade their payment systems to accept chip cards.
On the surface, migrating from magnetic stripe to chip payments seems like a simple card technology change. In practice, moving to chip is a paradigm shift of the entire payments ecosystem.
One of the most fundamental things for merchants to understand about migrating to chip payments is that it will not only impact the way payments are accepted and processed, but also greatly impacts the way payment acceptance products are designed and brought to market. As such, the merchant community’s EMV adoption plans should start by examining their current system and deciding on the type of payment acceptance solution that will be deployed to implement EMV.
Very broadly speaking, there are three types of payment acceptance solutions, or points of interaction (POIs), deployed by the merchant community today: standalone, semi-integrated and integrated. Introducing chip payments into these environments has large impacts with regards to the complexity and time to get the product to market.
A standalone POI is composed of an isolated payment device that connects directly to the host processor. These payment acceptance POIs are typically used by ISOs, acquirers and processors for small merchants.
Because standalone POIs are not integrated with any other systems in the merchant environment and connect directly with the acquirer host, they can be used immediately for any "direct connect" merchant. This system is provided with full EMV certifications.
Semi-integrated POIs consist of two parts: a hardware terminal that supports all payment acceptance software and a sales system that initiates and reports on payment interactions. When the payment processing and authorization are separated from the sales system, there is still a connection with the sales system, but EMV related payment processing is contained within the POI processing domain. This reduces the amount of complexity a merchant experiences while implementing and certifying chip technology. For this reason, the semi-integrated POI is considered a best practice solution that we advise our merchant customers to use.
The Integrated POI combines payment and sales into a single system where there is little separation or isolation between the two functions. There are many types of integrated POIs, often used by merchants that have specific operational requirements and need a high level of process automation.
While this environment may be convenient for managing inventory, scanning products, accepting and processing payments, and reporting, complexities can arise when chip technology is introduced. Unlike a semi-integrated POI, a fully integrated POI system requires recertification of the entire core sales system whenever any changes are made, increasing costs and decreasing efficiency.
To reduce the complexity associated with a fully integrated payment/sales POI solution, the best practice is to choose an EMV implementation that clearly isolates the sales function from the payment process and, if possible and appropriate, use a semi-integrated POI system for your chip acceptance solution deployment.
In summary, the choice of how the sales system interfaces with the payment system is vitally important. Merchants should consider semi-integrated POIs to reduce complexities regarding chip implementations as they remain stable over time to facilitate the independent evolution and maintenance of the sales and payment systems.
This information has been summarized and excerpted from the FIME white paper, “EMV Chip Migration for U.S. Merchant Community: Implementing Chip in the Complex U.S. Acceptance Environment,” which can be downloaded here.
Xavier Giandominici is the director of FIME America.