10 Tips for Selling Small Merchants on EMV

 

Many small merchants have no clue about EMV, and among those that do, many are unpersuaded. Here are some ideas to overcome those—and many other—hurdles before and after the liability shift.

Inertia can work with you or against you. When it comes to persuading smaller merchants to adopt EMV-compatible point-of-sale terminals in anticipation of the Oct. 1 liability shift, it appears to be working against the best efforts of acquirers, processors, banks, and independent sales organizations.

One estimate is that more than 70% of small merchants in the United States will not have EMV-compliant POS terminals come Oct. 1, the date responsibility for counterfeit fraud shifts to the party to a general-purpose credit or debit card transaction that doesn’t support EMV chip cards. Today, the issuer bears the risk for counterfeit transactions.

With millions more small businesses than large ones, the job ahead is of an unprecedented scale in the world of EMV chip card adoption. Other nations have successfully made the switch from magnetic-stripe cards to chip-embedded ones, but none has the unique fragmentation and, sometimes, opposing interests found in the U.S. payment card industry.

It makes the task of selling EMV-compatible POS terminals a little more challenging, but still achievable.

Standing in the way, however, are three major roadblocks. Merchants, especially smaller ones, have limited or no awareness of EMV technology and the impending liability shift. Those that are aware see little or no financial case to buy an EMV POS terminal, rationalizing they have low chargeback rates and experience little counterfeit or lost-and-stolen fraud.

The third obstacle is the sheer deluge of sales pitches about not just EMV, but also near-field communication (NFC) equipment, mobile POS terminals, and marketing programs. Confused merchants are likely to simply stick with what they have at the point of sale.

But, there are ways to cut through the clutter and find a message that might resonate with a small merchant. This is why, in April, Digital Transactions hosted a webinar laying out “10 Ways to Sell Small Merchants on EMV,” providing sales agents for independent sales organizations and acquirers some ideas for breaking through the cacophony bombarding merchants.

Another reason we held the webinar was to help acquirers overcome the inertia holding back small merchants from committing to EMV. Converting small merchants not only will be a major task, but one that likely will draw out over the next few years. Only 28% of small merchants expect to be EMV-compliant come Oct. 1, said a March report from 451 Research LLC. Of the 72% not expected to be compliant, 37% did not plan to have EMV terminals by then, and 35% are considering EMV, but have no timing in mind.

So here are our 10 tips, as compiled by an expert panel that included representatives from sponsor Total System Services Inc. (TSYS) and consultancy Double Diamond Group as well as Digital Transactions:

Tip 1: Explain how security-conscious consumers might balk.

Credit and debit card issuers are beginning to send more chip cards to consumers, and along with them marketing materials educating them about their security benefits. JPMorgan Chase & Co. built a Web site and produced videos explaining the virtues of chip cards. It began issuing EMV debit cards in May, and has been issuing EMV credit cards since 2011.

Leery of putting their accounts at risk, consumers encountering a merchant that can’t take EMV may choose to shop elsewhere instead. A recent MasterCard Inc. survey found that 33% of consumers preferred EMV-accepting merchants.

Tip 2: Tout tokenization and encryption as ways to improve overall payment card security.

Tout tokenization and encryption as ways to improve overall payment card security. Perhaps, in addition to selling in a store, a merchant has e-commerce or mobile-commerce sales. EMV does nothing to protect card-not-present transactions, but encryption, which replaces sensitive data with mathematically derived substitutes, and tokenization, which replaces the data with a random string of characters, can help with that. And, when combined with EMV for in-store transactions, they can reduce the risk to data at rest, data in transit, and at the point of purchase.

Tip 3: Enlist the help of independent software vendors and value-added resellers.

With the growing popularity of POS systems among smaller merchants, ISOs and agents can use them as a lead-in, touting principally the business-management features, such as sales reports, employee scheduling, or inventory management, making payments and EMV a secondary discussion.

This tactic can bypass merchant hesitation, and many payments companies realize this. Merchant-services provider BluePay Processing Inc. purchased CDI Technology Corp. because it provides e-commerce software and payment services to companies that use business-management software such as Oracle JD Edwards and SAP. Merchants want this software to help run their businesses. Let EMV come along.

Tip 4: Quantify the merchant’s fraud liability.

With just four months to go until the liability shift, sales agents could attempt to quantify how deeply fraud might cut into merchant profits, says webinar panel member Tom Fluegel, associate director of business development and product management at TSYS Acquiring Solutions, a unit of Columbus, Ga.-based TSYS. As an example, fraud of $100 on a magnetic-stripe card results in a chargeback and a $100 loss of goods. The total impact would be $100 plus fees from accepting the counterfeit card.

Tip 5: Demonstrate how criminals always hit the weakest link.

Merchants that assert that have no fraud or very little of it may not understand that they’re about to become bigger targets, Fluegel says. “Since you can’t counterfeit a chip card, fraudsters will seek out merchants without chip card-enabled devices,” he says, “so they can do all the mag-stripe fraud they do today.” And, as larger merchants turn on their EMV terminals, criminals will likewise move along to smaller merchants that do not have the technology, he says.

Tip 6: Underscore added risk for certain segments.

Some merchant categories may be susceptible to higher risk, Fluegel says. If you are a counterfeit fraudster you’re more likely to go to a packaged-goods store, but if the criminal is attempting to use a lost or stolen card, he is more likely to go to a bar or tavern, Fluegel says. Gift cards also present issues for small merchants. Gift cards can be used to launder money, converting bad funds into good.

Sales agents also can make the EMV argument based on a merchant’s location. Florida leads the nation in credit card fraud complaints, according to the Federal Trade Commission. If you’re in Florida and you own a jewelry store, you’re probably going to get hit with more fraud than a jewelry store in Idaho, Fluegel says. Sales agents can target high-risk merchant category codes and merchants in riskier locations.

Tip 7: Motivate ISO salespeople to sell EMV with the lure of long-term contracts.

Today a merchant contract is very valuable, says Rick Oglesby, senior analyst at Double Diamond Group, a Centennial, Colo.-based payments-advisory firm. That can be put to work. “It’s definitely worth your while to subsidize equipment if you need to extend the value, or extend the life, of a merchant contract,” Oglesby says.

And for salespeople, the values of residual agreements are abnormally high relative to upfront sales bonuses, he says. “It’s a perfect time to extend the length of merchant contracts with subsidized EMV-ready equipment and strong residual packages,” Oglesby says.

Tip 8: Point out merchant incentives such as free or discounted gear.

Point out to merchants incentives such as free or discounted gear. Some processors may be willing to incentivize or subsidize equipment because they are looking to get recurring revenue streams, Oglesby says. American Express Co. is in the midst of a $10 million program to subsidize small businesses’ purchases of EMV-enabled terminals. Each business in the program receives $100 towards the purchase of EMV equipment.

It comes down to using other people’s money, Oglesby says. “Use their money to reduce the cost of EMV conversion for your merchants, extend your relationships, and exponentially increase the value of your merchant portfolio in the process,” Oglesby says.

Tip 9: Show how EMV moves dial-up merchants to Internet protocol-based technology.

Show how EMV moves dial-up merchants to Internet protocol-based technology. Believe it or not, there are still a number of merchants using dial-up lines at the POS, so bundling EMV with other components can be a valuable tactic. Migrating from dial-up connectivity to Internet protocol can increase the speed of a transaction, as well as eliminating the need for a dedicated phone line for the device.

Technologies like encryption and tokenization can be bundled with EMV and can potentially reduce the merchant’s scope for PCI data-security-standard reporting, Oglesby says. Merchants also can use semi-integrated payments that reduce their PCI obligations.

Tip 10: Bundle EMV with other POS benefits.

Bundle EMV with other POS benefits. The multiple mobile-payments services also can be used to lead with merchants, “particularly when Apple is making a lot of noise in the market and merchants are trying to decide what to do, certainly bundling NFC solutions with EMV solutions, and tokenization solutions and encryption solutions and breach-protection solutions, all these things together in a single value proposition, in a single sale makes a tremendous amount of sense,” Oglesby says.

Sale agents also could promote how EMV terminals require customer access, since cardholders must be able to dip their chip cards into the device. “There’s a lot of value in customer-facing terminals in terms of just showing advertising, in terms of showing shopping-cart information on the terminal, if you want to have the ability to incorporate things like survey questions,” Oglesby says.

When pitching an integrated payment product, additional products can be added to the bundle to increase the value, he says. That can include business tools such as customized store management, loyalty programs, gift cards, check cashing, money transfer, and bill pay.

Acquirers may also consider an application store, which merchants can use to download apps to help with their businesses. Poynt Inc., a startup offering a mobile POS device, and the Clover POS products from First Data Corp., for example use this approach. Already, processors Chase Paymentech and Vantiv Inc. have agreed to offer the Poynt device when it ships later this year.

“The opportunity here is about far more than EMV, it’s about changing the overall equation from an acquiring perspective to being a value-added provider beyond just the payment stream,” Oglesby says. “This is a key opportunity. There’s not going to be another situation when so many merchants are going to be looking at upgrading their POS (equipment) all at the same time.”