How to Process Payments Safely and Securely in Current Economic Climate

Each month, we’ll help you navigate the emerging trends and forecasts for card-not-present (CNP) merchants with (what we think) are the best pieces of advice from Verifi and across the web. We promise to keep this newsletter short and sweet so let’s get started with this month’s …
Q> How is NFC, EMV and other alternative and emerging technologies impacting the payments ecosystem and how can I ensure that my business can continue to process payments safely and securely?
 A> NFC is here to stay. Apple Pay has all but solidified is present – and popularity – as a payment method, and a secure one at that. Given the security standard that NFC has set – one that also happens to be EMV-compliant – what effects will this have on merchants from an interchange perspective? As the CP and CNP lines continue to blur, merchants will need to reevaluate their payment processing from a security and efficiency standpoint to make certain transactions remain safe from end to end without adding obstacles to the process. Merchants should do their homework and properly plan for channel convergence to protect data, fight emerging fraud and stay up-to-date with payments standards like EMV. Staying one step ahead of the game will be key this year.
Not to be a broken record, but CNP is slated to dramatically rise in the next several years – Merchants take note. As EMV rolls out in the U.S., CNP fraud is predicted to
more than double by 2018, from $2.8 billion to over $6.3 billion.[1] Merchants should direct their efforts toward strengthening their fraud and risk management strategies as the EMV rollout continues to compound an already-alarming problem.
To effectively combat this increased fraud, merchants should take steps to protect every part of the transaction lifecycle and across all channels:

  • Get schooled by Goldilocks and score ‘just right’ fraud prevention
  • Maintain a secure, fraud-free mobile experience
  • Know which tools to use for mobile fraud prevention
  • Do you know who you’re doing business with? Protect CNP revenue without sacrificing customer experience

Near-Field-Communication or NFC payments have swept the payments world this past year. From the release of Apple Pay in 2014 to preparation for the shift to EMV, NFC continues to gain momentum with both merchants and consumers, and was responsible for almost $20 billion in sales in 2014.
The EMV migration to the chip-based card will catapult NFC since many merchants in the U.S. will be replacing their readers and many of the replacement will support NFC. That’s because security-wise, NFC is top-notch. In NFC-based mobile payment transactions, there is a secure element – protected by a unique digital signature – that has all the authorization power and is tamper-proof.
The proliferation of NFC and mobile will also have an impact on loyalty programs and how purchasing and retention marketing will evolve. According to retail TouchPoints, there are three key elements that will boost loyalty, and these are – coincidentally – the same three tents upon which Apple Pay is based:

  • painless enrollment
  • frictionless participation
  • effortless security

According to Aite Group, the blurring of CNP and card present will be one of the top trends for 2015. The fact of the matter is the online/offline payments divide is melting away.
The prevalent notion is that, as NFC grows, we’ll see an emerging new category of interchange. That is, while mobile is technically a form of CNP transaction, NFC technology used in mobile payments utilizes the same secure element that garners card-present rates as the POS today and may merit CP rates.
We’ve already seen this with Apple Pay the transactions of which are viewed as “card present” and carry a lower discount rate than their CNP counterparts. Additionally, Apple was able to reduce the card present rate 15 to 25 basis points.
More will be revealed as the migration toward EMV continues and the liability shift occurs in October. Many of the card readers that merchants are ordering to comply with the EMV standard are NFC-enabled, allowing for wider adoption of the technology and a payment frontrunner.
Merchants should do their research on NFC technology, its implications with EMV and the potential impacts to channel interchange rates. Employing the help of a third-party vendor can be helpful when trying to maintain safe, secure and streamlined payment processing across the entire transaction lifecycle. 
The number of data breaches in 2014 was staggering, hitting a record total of 783.  The sheer size of the retailers attacked as well as the financial ramifications of these breaches should strike fear into all merchants – card-present or not.
Thankfully, tools like tokenization and P2P Encryption can put a stop to the madness. By using encryption, merchants can protect data from the very beginning and throughout the entire transaction lifecycle. Tokenization returns a unique “token” to the merchant in place of the actual card information, allowing for authorization without exposing the actual credit card number.

As Apple Pay paves the way for streamlined NFC payments, the card brands are pondering how to treat these types of transactions moving forward. Currently, these transactions are eligible for lower interchange rates, due largely to their approach toward authentication and security and the use of biomentrics and geolocation for authentication and tokenizing the Device Account Number. As this technology continues to shape payments security and transaction authentication, card brands are anticipating new and different levels of charges.
NFC, emerging payments technologies and migration toward EMV will continue to influence the payments ecosystem – from a security standpoint and in terms of fraud prevention – and merchants should prepare for how the blurred lines of CP and CNP commerce will affect their business. Streamlining omni-channel payments while maintaining a safe, secure experience from beginning to end of the transaction lifecycle is a tall order for merchants, particularly those who may be stretched thin in the IT department. Remaining agile in security and fraud prevention will be essential to staying ahead of the curve in 2015 . for merchants who want to protect payments and boost profits as the landscape continues to evolve.
Re-evaluating your needs for the unique challenges of 2015?
Verifi’s Global Payment Gateway, Intelligence® Suite, Cardholder Dispute Resolution Network (CDRN™) and Chargeback Representment (CBR) combine to form a processor agnostic platform with the flexibility to manage all of your current and future needs. The “Super Gateway” provides omni-channel, end-to-end payments protection with customizable fraud tools, chargeback protection and prevention that stops up to 40% or more of your chargebacks, chargeback representment that recovers up to 50% of revenue lost to chargebacks and feedback loops to help you manage your front-end fraud prevention while protecting payments and boosting profits.
What are your thoughts? Ping us on twitter (@verifi) with #paymentstips and let us know what you think.
[1] Aite 20140630-Merchants-and-Cybercriminals-Duke-It-Out-Note-pdf_5983_18210_10125)10241-3.pdf