Mobile Payment Platforms Poised For Takeoff

This October mobile payment platforms will be set for a big boost in adoption, experts say.

If a fraudulent card transaction takes place today, the credit card issuer is held responsible. But EMV technology -- EMV stands for Europay, MasterCard and Visa -- is changing all that. Beginning in October, the liability for credit card fraud will shift from the credit card issuer to the merchant. This means that if a fraudulent card transaction is traced back to a retail store or business, the business owner is on the hook.

"When you have significant challenges, and major headlines of tens of millions of users with security breaches, I'm surprised this has taken this long," said Jack Narcotta, an analyst at Technology Business Research. "It's the nickel-and-dime fraud that just adds up after a while, which drives banks nuts. Those committing fraud aren't trying to make a fraudulent $100,000 transaction; it's the smaller transactions that are harder to trace."

[Related: Check It Out: ScanSource Prepping Partners For Big Opportunities In Point-Of-Sale Space]

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To make transactions more secure, banks and credit unions have started issuing new cards featuring security chips embedded inside. Already prevalent in European markets, chip card technology is much more secure than the common magnetic strip on the back of cards in the U.S.

"It's definitely a step forward for a couple reasons," said Matt Schulz, senior industry analyst at CreditCards.com. "It's hard to counterfeit the actual card because of the way it handles the person's card information. Instead of giving the card information to a retailer, it gives a unique transaction code. If that code were stolen, it would be like stealing an expired password."

Due to the October liability shift, retailers across the country already have begun to replace their payment terminals for ones that accept the new chip cards.

John Deery, founder of JD Associates, a Leominster, Mass.-based solution provider in the POS space, has been focusing on the opportunity surrounding the October mandate for more than a year.

"We started converting customers in early 2014 and we have a lot that have converted over," said Deery. "We have well over 100 clients that have converted, primarily in New England, but we have customers nationwide."

Deery said business already is picking up as his company performs this service for a few clients a week. He also views this as a big opportunity for mobile payment platforms as they will take advantage of NFC technology in new terminals. He said he expects Apple Pay and Google Wallet to see a great amount of growth.

"There is no question about it," Deery said. "[Retailers] are getting NFC technology when they are getting the new terminal, so why wouldn't they adopt [mobile payments]?"

NFC technology is what allows the device-to-terminal transaction to take place with Apple Pay and Google Wallet. One of the big hurdles holding back the adoption of both platforms is they require retail stores and merchants to buy new payment terminals with an NFC antenna. Now, with the liability shift on the horizon, there is a big reason for stores to completely replace all of their payment terminals, and it is likely that the new terminals will include the NFC technology Apple Pay and Google Wallet require, experts say.

Also in the mobile payment mix is Samsung, which acquired LoopPay in February. Unlike Apple Pay and Google Wallet, however, LoopPay does not use NFC technology. Instead, it utilizes the magnetic strip readers, allowing it to be supported by a large majority of POS terminals.

LoopPay's Magnetic Secure Transmission technology offers advanced contactless payments that turn magnetic-strip card readers into mobile contactless receivers without changes or costs for the merchant or client. Unlike other mobile systems, this technology allows consumers to tap their smartphones against the magnetic-strip-reader machines that are available in most stores, according to LoopPay.

How will this play out across U.S. retail stores?

"The fundamental thing is that the credit card experience isn't all that bad today," said Jordan McKee, senior analyst for mobile payments at 451 Research. "It's a very entrenched behavior. Even with Apple Pay, there is a lot of buzz around it, but it's really a surrogate model. It needs to pull in things like loyalty programs and rewards. On the flip side, merchants haven't adopted terminals that can accept mobile payments, but that is what is exciting about EMV. It's finally building out the acceptance network."

McKee believes Apple planned the launch of its mobile payment platform exactly a year prior to the EMV October liability shift to take advantage of the opportunity. He doesn't see October being a "light switch event" where every business suddenly accepts Apple Pay and Google Wallet, but he does see it leading to high rates of adoption over time.

"At a high level, EMV has profound implications for mobile payments in the U.S.," McKee said. "We see it creating an infrastructure for mobile payments to thrive. As merchants upgrade to EMV-ready terminals, NFC is coming with that. We are starting to see the foundation for mobile payments take shape. We are looking at a three-or-so-year adoption cycle before we see complete EMV penetration across the U.S., especially in small markets. Those are going to be the laggards here. … It'll be somewhat of a lengthy period, but we’re headed in the right direction."

This article originally appeared as an exclusive on the CRN Tech News App for iOS and Windows 8.