News >> On the cover

Most retailers` bank-supplied electronic fund transfer systems are MV-capable. But mass-retail groups with custom solutions and in-house systems have a longer road to travel in terms of upgrades BY YEAR-END most conventional magstripe credit and debit cards will be replaced with cards that make use of a smartcard chip and pin codes instead of signatures, to curtail fraud.

While this has been coming for a while, the changes it will ring for retail groups are interesting.

For most merchants the switch, if not already made, is a non-issue. According to Visa International, around 80% of SA POS terminals are already smartcard-enabled.

Furthermore, the vast majority of merchants that don`t have smartcard-enabled terminals won`t suffer disruption in their day-to-day lives - their bank will simply replace their legacy point of sale (POS) card reader with one that is EMV-compliant.

The mass retail groups that haven`t already made the change to EMV on the other hand, since they have customised POS solutions that have integrated credit and debit card processing facilities, and communicate with their banking institution on the back-end through a switch, have a longer road ahead of them.

While that longer road may mean additional investment and a slight delay before their systems are 100% compliant with banking requirements, these retailers stand to benefit from additional efficiencies and may well be able to offer additional services to their clients in future.


, managing consultant for in-store solutions at UCS, a retail solution provider, says even before EMV hit the scene, which would require backend upgrades to customised, integrated online EFT and POS solutions, many mass retail groups decided to go the customised way and own their own switch.

"Retail is all about customer service," says Middleton. "Any retailer will tell you customers would rather not wait at a till point while the attendant uses a central or `pool` EFT machine to process payment. It also makes the customer`s impression of the store that much better when the EFT machine is integrated into the POS solution.

"For the retailer this makes for faster trade and higher turnover," he says.


Besides the surface benefits, Middleton says going this route also allows for more streamlined internal operations, something that`s undoubtedly beneficial to any large organisation.

"If a massive store in a chain were using a standalone EFT machine from their bank at each till point, they would need to do a massive reconciliation exercise at the end of each day`s trade. As part of that reconciliation, they would need to go through each sale, making sure it matches the EFT transaction.

"Generally they would find a couple of exceptions that require a follow-up investigation. The problem, however, is that these exceptions are only revealed after laborious reconciliation. A substantial amount of time could be wasted," he says.

"Depending on how many EFT transactions the retailer has processed during the day, the time required for reconciliation can vary.

"Through utilising an integrated POS and EFT solution, that reconciliation process is automated, meaning the couple of exceptions that may arise are presented in a report at the end of the day`s trade, obviously reducing administration time substantially," he adds.

"This integrated approach also has the benefit of reducing the number of exceptions taking place, since the actual value of the sale is what is electronically passed through to the EFT device, eliminating errors resulting from `finger trouble`."


Middleton says, lastly, what`s most attractive in integrated POS/EFT solutions is the reduction in costs they afford. "If a retailer uses the bank`s default EFT terminal, they generally have to pay rent for the unit and pay a charge for each transaction.

"By investing in an integrated solution, complete with a switch at the backend, retailers can reduce the cost of each transaction, by negotiating a more agreeable rate. By owning the infrastructure, overall costs become less, proportional to the number of transactions, and more of a fixed fee for operating the infrastructure. As transactions grow, the costs of processing a transaction will drop. "Another cost associated with standalone, bank-supplied EFT devices stems from the need for a telephone line or radio pad. With an integrated solution, this traffic goes through the retail chain`s central WAN network," adds , in-store development and support manager at UCS.

"Of course, many retailers also find it beneficial to support their POS and EFT solutions through their central IT operations support resource, since they can then have first-hand control of the quality of service associated with troubleshooting and resolving hardware/software problems," she says.


Middleton says a fourth benefit, but one that doesn`t necessarily drive the move to integrated solutions, is that owning or renting switch functionality gives the retailer access to additional services and potential revenue streams.

"By having their own switch functionality, retailers can sell electronic gift vouchers (which are much more secure than traditional handwritten vouchers) and provide additional services such as the sale of cellular airtime and TV licences, as well as conducting electronic cheque clearance. This can, on the one hand, reduce potential losses and, on the other, create additional revenue streams," he says.

While all of these services fall in the traditional realm of EFT, Middleton says the switch to EMV and the accompanying need to upgrade existing solutions has opened an opportunity for retailers that don`t have a customised, integrated solution to put one in place.

"If retailers need to make certain changes to embrace EMV, they may well find it makes sense to begin looking at an integrated and customised solution, since it offers them so much more," he says.


As for the upgrades and enhancements to integrated solutions to become EMV-compliant, "For starters, they will in many cases need to install new chip readers into their POS systems, along with external numeric key pads that allow customers to easily authorise transactions by entering their pin," Batye adds. "Once this is done, their POS system may well require a software upgrade," she adds.

"Lastly, they will need to interface closely with their bank or switch provider to ensure their own backend interface meets with their bank`s approval.

"What could possibly make this process a little laborious," Battye continues, "is that the EMV process is quite strict and compliance is governed by the banks."

As things stand, most SA banks already have accreditation from Visa and MasterCard, and are incentivising retailers to become accredited with their bank. The incentive is rather strong.

"To allay risk and fraud the banks are protecting themselves well," Battye explains. "If a retailer refuses to move to an EMV solution, whether that is through an EMV-capable POS terminal or through compliance for their in-house solution, and a questionable transaction is processed, which could have been prevented through the use of EMV processes, the retailer would own the chargeback and, as such, the loss.

"If however, they are using an EMV solution and the transaction is still incorrectly processed, they will not carry the burden."


"Today it`s rather easy for `card skimmers` to make a copy of a magstripe credit card," says Battye. Moving to a `chip-and-pin` solution makes it harder.

"Replicating the chip information is not as simple and the fact that each transaction must be accompanied by a pin makes the process even harder to defraud," she explains.

Adding to this , during the EMV transaction process the smart card actually goes `online` with the issuing institution.

"In the interim, however, [smart]cards will still have magstripes (because they should be backwards compatible with legacy EFT terminals). Whether or not all of this extra security will be more secure is still unclear," she says.

Battye says one major advantage `chip and pin` cards will offer over traditional cards is that they enable installation of new services and applications, to enable a wider a variety of transactions for users.

Tags: On  The  Cover