NFC payments could be the end of PCI Compliance
NFC (near field communications), also known as EMV (Europay, MasterCard, Visa),
being implemented as the main form or secure payments seems inevitable. The United States appears to be the last of the large countries to integrate the use of NFC chip card payments instead of magnetic strip credit cards. The use of NFC chip and PIN payments has been proven to reduce credit card fraud losses to business owners and banks by five times. Of course there is a downside which is the cost of implementing NFC technology. It has been estimated to cost in the neighborhood of $13 Billion!
Visa seems to be the largest proponent of NFC chip technology
Visa has announced a three part program which starts in October of 2012. Under this program Visa will:
- No longer require merchants to validate their PCI compliance if 75% of their transactions are completed using from NFC technology
- Visa will shift the liability for credit card fraud from the bank who issued the credit card to the merchant if fraudulent transactions occurred on terminals that are NOT equiped to read NFC Chips.
- Visa is going to require that all credit card processors (or acquiring banks) are able to process NFC chip transactions as well as dynamic authentication (which I will cover later)
Considering that PCI Compliance is one of the largest areas of tension with merchants this appears to be an aggressive campaign by Visa. So, why is Visa aggressively pushing the US to endorse NFC? Well it is simple economics. NFC technology has proven to be an effective step in battle against criminals and credit card fraud that costs banks and merchants billions of dollars a year. This does not even begin to include the stress and headaches that a security breach can create.
So if PCI compliance was the first step
Then the next logical step in fighting credit card fraud and the massive losses to banks and merchants is to implement NFC payment technology then the next question is: Who gets left with the bill?
Unfortunately, it is predicted that the majority of the $13 billion dollar elephant in the room is going to fall on the shoulders business owners. Of course some of the cost will be paid by acquiring banks since the cost of issuing NFC chip enabled cards is about 4 times that of magnetic strip credit cards. Banks and processing platforms will have to be upgraded and replaced. The majority of the cost, however, will come from the cost to upgrade or replace the thousands of outdated credit card terminals and POS systems to enable them to accept NFC credit card payments.
Let’s take a look at the upside though.
First, knowing that the liability of credit card fraud can cripple or destroy many small to medium businesses is it not right to ask this question:
Since NFC payment technology proven to result in credit card fraud losses that are about 1/5th of traditional magnetic strip credit cards; is a small investment per business a reasonable sacrifice to make if it means that life is better for the country as a whole?
The cost to upgrade to NFC technology should cost the average business just a few hundred dollars. That few hundred dollar investment could mean that you NEVER have to go through the annual pain of validating your PCI compliance again. That small investment could also greatly limit your personal and business liability should a security breach that results in credit card fraud occur.
So how far away is the mass integration of NFC technology?
Many industry experts disagree on this matter, however, it seems to me that with the Google mobile wallet working with Sprint, First Data, and Citigroup along with Isis (a partnership of AT&T, Verizon, and T-Mobile) all working on NFC technology to release into the mainstream marketplace I believe it is closer than we think.
If you have any questions, concerns, or comments please leave them below and the Merchant Doctor will be happy to address them for you.
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