ETA Expert Insights: EMV and the Payments Technology Ecosystem
By: Scott Goldthwaite (Aliaswire), ETA Technology Council Chair, and Jared Poulson (Payroc), ETA Technology Council Co-Chair
As we approach the two-year anniversary of the EMV liability shift in the United States, now is a good time to take stock of our progress and the challenges that must still be addressed. The ETA Technology Council worked with payments and technology companies to identify the key factors driving ubiquitous EMV acceptance and safer payments in the United States. Technology companies play a significant role in ensuring interoperability and seamless payment transactions for large and small merchants alike. We specifically examined the experience of Independent Software Vendors (ISVs) in developing software that accommodates EMV specifications. In this, as in so many aspects of the payments industry, partnerships are key.
THE ROAD SO FAR
EMVCo reports that nearly 1 in 5 US card-present payment transactions in 2016 were chip-on-chip. Compare this rate to 2015, when just 2% of transactions (or 1 in 50) were chip-on-chip. In March 2017, there were one billion Visa chip transactions in the U.S. (worth about $49.1 billion) and over two million chip-enabled merchant locations, representing about 44% of all U.S. storefronts. While businesses of all sizes are gradually upgrading to the safer EMV standard, progress has been quickest among larger retailers – among the top 200 merchants in the United States, 76% were EMV compliant by the end of 2016.
CHALLENGES
Before merchants can use their new EMV terminals, the terminal hardware must be certified by EMVCo and then the payment applications within the terminal must be end-to-end certified by the card networks and the processor/acquirer. The complexity of chip card transactions relative to magnetic stripe transactions means that certification is a long, often arduous process.
Certification delays affect the entire payments value chain, but certification can raise particular challenges for ISVs. If, as is the case for ISVs, the merchant’s payment system is tied to inventory control, CRM software or any other software, each of these connected applications must be certified by the merchant processor. The same goes for POS systems that work across multiple devices. Each layer of complexity adds more time and introduces additional stakeholders to the certification process.
Scott Goldthwaite, SVP of Operations at Aliaswire, explains that, “like most ISV’s, Aliaswire supports many different acquirer/processor hosts. Finding a single solution that triangulates a PIN pad with the right processor certifications and the right technology implementation has proven to be more complex than we originally thought.” Adding card present capabilities to a POS solution that accommodate EMV specifications requires a “significant amount of engineering design and product management thought,” says Goldthwaite. For Irv Henderson, founder and CEO of talech, “the certification process remains too complex and opaque. Based on the migration experience in other markets, such as Europe and Canada, this will be a journey for the next few years.”
THE ROLE OF PARTNERSHIPS
ISVs understandably want to focus on developing and maintaining applications for their merchant customers – not dealing with certification or supply chain issues. Partnering with processors and/or gateways allows the players involved to focus on their area of expertise instead of trying to do it all. There are two main channels that ISVs can leverage to address some of the challenges related to EMV certification:
- Processor and manufacturer SDKs that eliminate the need to certify each new device integration from scratch
Processors and terminal manufacturers are opening up their software APIs, allowing developers to create innovative software that works seamlessly across devices and networks. Allen Friedman, Vice President of Payment Solutions at Ingenico, explains that “all current Ingenico terminals in production in the U.S. use the same Operating System and same EMV contact L2 kernel. If the same merchant application can be used across devices, then only one certification is needed.” But even when it’s not possible to use the same application across devices, a single certification can still cover multiple devices. And terminal manufacturer SDKs allow ISVs to integrate into an entire family of devices in one go.
There is a growing market for semi-integrated solutions that remove the POS system from the scope of certification. Many SMBs need payment products that integrate seamlessly with their sales and customer management technology, but do not have extensive customization requirements and so do not need a fully integrated solution. Semi-integrated offerings consist of a payment terminal connected to a POS application, and typically offer features such as inventory tracking, integrated accounting software, barcode scanning, analytics, and embedded loyalty programs. With many semi-integrated solutions, certification and integration with the POS are completed in advance.
- Gateway providers that allow ISVs to integrate with multiple processors across several devices
Payment gateways are usually associated with ecommerce – a tool that allows merchants to accept payments online. But more and more gateways have started providing solutions for brick-and-mortar retail, focusing on EMV and contactless acceptance. Many payment gateways offer an abstraction layer that hides – or abstracts – the particular requirements of different processors, allowing ISVs to develop POS applications that seamlessly work across multiple channels. This is typically through an SDK, although some gateways offer APIs and other integration tools as well.
For instance, Creditcall developed ChipDNA, a pre-certified portfolio of SDKs that allow merchants – or the ISVs that serve them – to connect their POS applications to the Creditcall payment gateway, bypassing most of the processor certification requirements. With 38 EMV certifications as of January 2017, ChipDNA is certified with most of the major processors and several terminals, providing ISVs and their merchant customers with a wide range of options for accepting EMV.
USAePay offers software developers a wide variety of tools, ranging from a simple e-payment form that eliminates the need for merchants to maintain their own SSL certificates to a sophisticated POS integration that supports over 20 software companies. USAePay also hosts a Payment Engine middleware library that allows software developers to integrate into its pre-certified EMV solutions.
For Henderson (talech), “this approach offers ISVs a significant opportunity to scale, as they only need to integrate into one set of SDKs in order to reach multiple processors.”
In the end, is it better to partner with a gateway, a processor, or a terminal manufacturer? Many ISVs are opting for all of the above. With a continued consolidation of processors, acquirers, gateways and POS technology providers, picking the right partner and the right long term solution is even more complex. Building partnerships across the payments value chain allows software developers to offer their merchant customers flexibility and leverage the expertise of the payments industry. And creating more pathways to EMV acceptance brings us closer to safer and more convenient payments for consumers everywhere.
With thanks to Irv Henderson (talech) and Allen Friedman (Ingenico) for their contributions to this article.
The ETA Technology Council identifies current and emerging technology-related issues and helps communicate these issues to the membership. The Council provides information on technology trends and applications to ensure that ETA is established as a valued information source for members and for the industry. ETA members can join the Council here.