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EMV vs. Mobile Wallet: To Upgrade or Not to Upgrade?

Both options come at a cost; should one be put ahead of the other?

ATLANTA -- Fuel retailers across the United States are in the midst of upgrading their gas-pump credit-card readers to accept EMV (EuroPay, MasterCard, Visa) “chip-and-pin” cards due to the upcoming liability shift. As of October 2017, fuel retailers may be liable for payment fraud unless they have upgraded their gas-pump hardware from old magnetic-stripe readers to EMV credit- and debit-card readers. consumer adoption of Apple Pay

Gasoline retailers facing this investment expense are wise to ask, “Is this it for payment upgrades?” The answer is no; the mobile wallet is right behind EMV as a payment method that consumers will use.

ExxonMobil announced in early March that it has added mobile payments to Speedpass+, allowing customers to use Apple Pay for payments at the pump. The company announced a plan to have this solution implemented at more than 8,000 sites by mid-2016.

Projections suggest that mobile wallets, such as Android Pay and Apple Pay, will see rapid increases in use in the next three to five years. eMarketer estimates that use of mobile payments will expand from 19% to 31% of U.S. smartphone users by 2019. The value of mobile-payment transactions is forecasted to increase from $27 billion in 2016 to more than $200 billion by 2019.

Beyond the most common perception of the mobile wallet as a smartphone-enabled payment method, additional developments are emerging. The ability to pay for gas directly from cars is on the drawing board at both Ford and Honda. The launch of the FordPass payment platform is rumored to be as near as later this year, potentially enabling payments with partners including McDonald’s and 7-Eleven.

This begs the question: Should retailers skip EMV upgrades and go straight to the mobile wallet, which uses near-field-communication (NFC) wireless technology and requires additional payment hardware on the dispenser?

In upgrading a gas dispenser to EMV, the standard factory dispenser equipment on brands such as Gilbarco Encore and Wayne Ovation does not include an NFC reader as a standard feature, but rather as an extra-cost option.

In consideration of adding NFC payment early, consider that one of the benefits of contactless NFC technology is that it has few moving parts. Customers don’t swipe their card or insert it into a slot; they simply wave or tap their EMV card or smartphone in front of the sensor.

There are four payment upgrade options. Let’s take a look at each:

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1.    Do not upgrade to EMV nor mobile payment

As was discussed in the CSP article "The Real EMV Risk," not upgrading to EMV exposes your business to share loss, increased liability and, potentially, a 15% higher cost if you wait until 2018 or 2019. If you are a major-oil-branded retailer or on one of the major payment networks, there also is the potential that an EMV upgrade will be mandated to stay on the payment network. For these reasons, doing nothing may not be a prudent strategy.

2.    Upgrade to NFC/mobile without EMV

Just as doing nothing may not be a prudent strategy, upgrading to NFC only will limit your ability to accept EMV transactions, exposing you to the liability shift and share-loss risks. Additionally, depending on the age of your pumps, your current dispenser electronics (CRIND) may not have the ability to be upgraded for NFC without an upgrade to the payment electronics.

While it is true that mobile-wallet use is expanding, industry experts predict it will take at least 10 years for it to achieve widespread adoption. Also, a segment of consumers simply will never adopt the mobile-wallet technology as a preferred form of payment, putting you at risk of losing those customers.

Although the Apple Pay trial grew by almost 100% last year, it still reaches only 17% of consumers. Assuming trial expands by 15% a year, and that these new users stick with it, widespread adoption would be five years away at the least. Even then, based on current statistics, at least 20% of users will not make it their predominant payment method. With a segment of your customers staying with credit-card payments for the next decade, going only with NFC is not a strategy that will retain your current customer base.

3.    Upgrade to EMV without NFC/mobile

It is highly likely that you will want to add NFC payment to your customer experience in the next three years. The cost of adding it now will likely be less than adding it later as an upgrade due to several factors. The cost of purchasing an upgrade kit for a Gilbarco Encore or Wayne Ovation is estimated to be at least 25% higher than purchasing it as a factory-installed option on either a new dispenser or an EMV-upgrade kit. Also, upgrading later will require an additional technician site visit and downtime for your pumps, adding several hundred dollars in cost and customer inconvenience. The lowest-cost option for upgrading is to combine NFC with EMV upgrades.

The second reason you may consider waiting to upgrade is the risk of the specs changing. All major mobile-wallet providers have agreed to a common specification for payment communications, making the risk of ending up with obsolete equipment or equipment needing a significant upgrade low. Both Android, with a 66% market share, and Apple, with a 30% market share, use a standard communications protocol.

4.    Upgrade to both EMV and NFC/mobile

I believe this is the smartest choice. Including an NFC reader with a dispenser upgrade or a new dispenser has several benefits.

First, it will be more cost-effective, because there will not be a separate service call, additional business disruption or the cost of an aftermarket part. Adding NFC readers to new Encores or Ovations will add an estimated $6,000 to $10,000 cost to your dispenser upgrades now, but it will save you a larger bill later.

Second, you will be able to offer your customers the option of using the mobile wallet and products such as Android Pay and Apple Pay now, immediately beginning to capture those who prefer this payment method. Adding NFC can simplify implementing a loyalty program and improve your ability to offer geofenced promotions.

Customer loyalty is always an uphill battle in the c-store and retail fuel industries, and the opportunity to target mobile-wallet customers with instant or bounce-back coupons can attract more pay-at-the-pump customers inside the store for an additional purchase, expanding your profitability.

“We are having discussions with a wide range of retailers and loyalty providers about the potential of the mobile wallet, and many retailers are standardizing on NFC readers as part of their EMV upgrades,” said Luke Grant, director of payment technology for Gilbarco Veeder-Root. “Combining the marketing power and flexibility of the NFC platform with the merchandising offered by pump media, such as Gilbarco’s Applause TV, gives retailers and brands an unprecedented opportunity to incent consumers during the ‘down time’ of fueling.”

As with EMV, I believe it’s not a question of if you need to have NFC payment at the pump, but when you should implement it. NFC is a relatively low-cost option from the major gas-pump manufacturers, and it's something that can be added more cost-effectively in conjunction with EMV technology than as an upgrade a few years from now.

Mobile-wallet use will continue to increase, likely at an accelerating rate. The good news is that the major mobile wallets all operate on the same standards, so it’s not a VHS/Betamax scenario on which you can make a wrong bet. There will always be a portion of consumers who will not adopt a new payment technology and another segment that will be slow to move from credit cards to mobile payment.

I believe that the right business strategy is to have what your customer wants, and in this case it’s EMV plus NFC.

Richard Browne is vice president, marketing for Patriot Capital Corp. Contact him at [email protected]. Based in Atlanta, Patriot Capital specializes in enabling entrepreneurs to succeed by providing hassle-free equipment financing to retailers in the convenience-store and retail-petroleum fueling industries. Follow Patriot Capital on Twitter @PatriotCapital. Patriot Capital is powered by State Bank and Trust.

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