Where will payment hackers go post-EMV?

By Daphne Howland | July 23, 2015                                                             

Right now, in the midst of summertime—school vacation, camping trips, beach days—it’s hard for anyone to imagine Oct. 1. But it’s top of mind for retailers, which will experience a shift in liability, from credit card companies and banks to themselves, whenever a credit card is compromised by fraud if they haven't updated their systems to be EMV-compliant.

 

All retailers should have their EMV (which stands for Europay, MasterCard, Visa) point-of-sales systems ready to go on Oct. 1 to handle the new credit cards that are far more difficult to hack. 

Until then, U.S. consumers are blithely swiping their credit cards and debit cards with magnetic strips holding access to their money, their good credit, and even their personal information. These simple magnetic strips have been compared to an eight-track cassette and are fairly porous to data-sucking thieves.

 

New EMV cards will have a shiny metallic square containing a more secure chip and most can also use Near-Field Communications to make a payment. The new POS systems are expected to be much safer than their predecessors, helping retailers prevent the kind of massive fraud that have infamously compromised the payment systems at Home Depot, Target, Neiman Marcus, Michaels, and others.

 

But hackers aren’t just going to disappear after this switch to EMV cards and POS systems that accept them. And it’s safe to guess that they’ll likely go online.

 

Retailers are unprepared for online fraud

While omnichannel retailers may be preoccupied with preparing for Oct. 1, they may not be prepared for what experts say is the inevitable shift to online payment fraud. The good news is that, if a retailer is hit, it can be a sign of business success.

 

“If someone hits you, it’s a bittersweet moment, that you’re big enough that someone wants to take advantage of you and your many transactions,” Jason Tan, CEO and founder of fraud detection company Sift Science, told Retail Dive. “The trouble is, as long as you keep growing and your business is thriving you’re always going to see fraud.”

 

The reality is that online fraud will jump, and retailers by and large aren’t ready for that. That could mean a new season of breach stories and a different kind of nightmare. 

 

“Offline merchants are generally prepared because it’s mandated by the credit card companies and they have a big liability shift coming,” Tan says. “I don’t think the online merchant is that prepared because human nature is to procrastinate. In other countries the year after the EMV mandate, online merchants saw two times the fraud. That’s a massive massive jump in fraud — so how do you how install a defense mechanism so that doesn't keep you up at night?”

 

The good news: The technology is here

While EMV technology has been employed for a while abroad, it’s just now arriving in the states. But the technology to tackle and prevent online fraud is here now. Tan notes that Sift Science tackles fraud issues using machine learning behavior technology with APIs and advanced modeling to track, score, and categorize online transactions. 

 

Using such algorithm-based systems, Tan says, is far superior to the human-led, human-dependent rules-based systems that most retailers use now.

 

“There are too many orders from manual review that require a full time staff, and, worse, they’re not accurate,” he says. “You want to be able to stop the bad users, but let in the good customers easily.”

 

Convenience remains important 

That's it, of course: the key is to find effective technology keeps data safe without overly inconveniencing shoppers. Making checkout too difficult is a recipe for cart abandonment. 

 

It’s a disaster when hackers find their way onto a retailer’s site, but it can be deadly to a sale if authentic customers there to buy have to deal with awkward, time-consuming fraud prevention measures. Tan says that Amazon is an example of a company that uses technology extremely effectively, and knows how to keep the checkout system humming smoothing for its fraud-free customers.

 

The bad news: Trouble's still lurking

It’s easily forgotten that a major pipeline to online fraud is the telephone. Unscrupulous retail or hotel employees often obtain credit card numbers over the phone during a sale or customer service transaction and sell them for use online, Laurence Cooke, founder and CEO of loyalty and payment platform nanoPay, told Retail Dive.

 

“It’s so much easier to steal a card when you’re being read the card numbers on the phone,” Cooke says. “What doesn’t go away with EMV is that cards are captured on phone orders or catalog orders, and then they get used online.”

 

EMV transactions will be palpably slower than credit card swipes are now, which might prompt people to use contactless payments.  

 

“When you use a mobile app,” Cooke says, “it’s a more secure way, but as easy as swiping or tapping.”

 

That means that the switch to EMV, and the resulting added risk of online fraud, have a good chance of boosting the adoption of mobile payments, Cooke believes.

 

And if retailers are smart enough to take advantage of mobile’s data collection capabilities and streamline their online systems in ways like those Tan describes, they will also be able to develop more effective loyalty programs. That in turn could move mobile payment adoption even more swiftly.

 

Indeed, while Tan gives Amazon credit for its ability to quickly nab dubious payments, Cooke similarly gives the e-retail giant props for its loyalty program. The two things turn out to be tightly connected.

 

“The reason Amazon beats Wal-mart isn’t because they have better supply chain or better options,” Cooke says. “It’s that Amazon knows everything about you and Wal-Mart knows nothing about you. Wal-Mart may have discounts, but they may not be relevant to you at all.”

 

If retailers want to, they could leverage mobile to help make payments more secure and, in turn, help them get to know their customers in the same way.

 

NFC, Apple Pay, Android—doesn’t matter

Cooke is fairly agnostic about whether the road to greater mobile payment adoption is Near-Field Communication, Apple Pay, or Google Wallet. 

 

“I don’t think Apple Pay can be completely successful everywhere without Android also being completely successful,” he says. “My only opinion is that it should be up to retailers to choose. We shouldn’t try to force it.”

 

The bottom line

Above all, retailers need to realize that there’s no magic fraud protection in EMV, or in mobile payments, or machine learning for that matter.

 

"I don’t think it’s black and white— I don’t think you’re either secure or not," Tan says, "The hackers and the fraudsters are always working.”

 

To view the original article please visit: http://www.retaildive.com/news/where-will-payment-hackers-go-post-emv/402505/

 

Amazon: No fear of failure

By Daphne Howland | March 18, 2015                                                             


Since the mid-nineties, America’s premier e-commerce site has habitually and utterly disrupted retail. But recently retailers have hit back, with more nimble e-commerce sites of their own, price matches, and delivery options that continue to rival whatever Amazon comes up with.

And while other retailers created and improved their omni-channel strategies, Amazon overplayed its hand and launched an entire phone when a mobile app may have been the better trick.

But Amazon’s willingness to try and fail may ultimately be the key to its continued success. Retail Dive looks at the challenges Amazon faces these days.

 

Showrooming goes in reverse

There was a time when retailers large and small were crumpled by shoppers showrooming—where they would check out the goods they wanted in stores and buy from Amazon at significant discounts. But retailers of all sizes have learned to match prices, provide added advantages to being in store, or both, and now consumers are just as likely to reverse the process: search for things online and head to the store to get it immediately, a process now known as “webrooming.”

That has helped spark a dizzying array of delivery options from retailers—of all speeds and conveniences. Cheap or free shipping with increasingly lower minimums, same-day delivery, and pick-up in-store.

“While showrooming is centered on price, 'reverse showrooming' is all about discovery,” writes Jeff Fagel, CMO of G/O Digital, in Entrepreneur magazine. “Therein lies the real opportunity. As our research found, 30% of holiday shoppers said they always use their desktop/laptop computers to research on-sale items before heading to stores. If that stat isn’t convincing enough, another 25% said they go online to ‘compare products and prices between retail stores’ before making their way to stores.”

 

Prices don’t matter so much anymore

These days, consumers are in the driver’s seat, demanding good value from retailers of all kinds, not just Amazon. For one thing, they’re wising up to the fact that Amazon doesn't necessarily present the best way to shop, and its prices aren’t always the lowest any more either.

Larger retailers like Target, Wal-Mart Stores, and Best Buy have risen to the challenge and have done a good job of matching Amazon’s once-always lower prices.

And retailers like local booksellers, which can’t meet Amazon’s cut rates, have found other ways to please customers with services and loyalty programs that require in-person relationships.

"There is this larger, cultural shift ... to buy local,” Stacy Mitchell, a senior researcher with the Institute for Local Self-Reliance, told CNN. "Rather than pulling back and buying into the idea that they could save a few bucks elsewhere, in many communities, people seemed to make even more of an effort to steer their spending to businesses owned locally.”

 

E-commerce is still being disrupted

And not always by Amazon. In addition to pricing, delivery, pick-up, and return options offered by many retailers, soon-to-launch Jet will be introducing even newer ways for consumers to save money.

Amazon initially freaked out retail by undercutting on price, then disrupted itself (and everyone else) further by offering ways to get free shipping. But Jet, much like bulk e-commerce site Boxed, is adding layers of disruption by providing more variables and choices to consumers. Also like Boxed, Jet plans include nimble mobile commerce, Jet CRO Scott Hilton told Retail Dive.

The site will work with retailers’ inventories to locate items a shopper wants and provide options. The item, price, speed, basket size, and basket mix are all variables that may be under a shopper’s control, and Jet shows the potential savings.

“We have a unique tech angle—live dynamic pricing and repricing,” Hilton says. “There are options that steer shoppers to more economically efficient orders. Jet members will be able to pay more to speed up shipping or waive the right to return to save money.”

Jet will be based on a membership model. At $49 a year, it’s way below Amazon’s $99 Prime membership and will be Jet’s only source of profit.

Of course, Amazon’s Prime membership is a formidable thing: Amazon Prime members spend $1,500 each year, more than double the $625 non-Prime members spend. Amazon doesn’t release its figures on Prime membership, but Consumer Intelligence Research Partners, LLC (CIRP) in January estimated that the retailer has some 40 million Prime members, bulked up in part by free trial offers over the holidays.

And Prime members enjoy a raft of extra privileges that greatly boost Amazon’s value to them, including access to the company’s streaming entertainment and music services and access to its Kindle lending library at no extra charge.

 

Is pure-play e-commerce doomed?

New York University marketing professor Scott Galloway makes a strong case that pure-play retailers, whether just brick-and-mortar or just e-commerce, are doomed. He includes Amazon, whose approach he dubs a "last-man strategy," meaning that Amazon is waiting for its competitors to struggle under the challenges it presents to retail (free shipping, fast shipping, one-click orders, low prices) until they essentially cry "Uncle."

Galloway says that retailers (and delivery services like Uber) are successfully taking on that challenge, though, and that Amazon will stumble as stores beef up their e-commerce and especially their fulfillment options.

Others don't buy that, saying that Amazon is in many ways as special as Jeff Bezos seems to think it is.

"I disagree," writes Oracle's David Dorf in his Commerce Anywhere blog of Galloway's assertions. "Not because the logic is flawed, but rather because Amazon is not a typical retailer. I believe they could be profitable if they wanted to but instead choose to continue investing in widening their competitive moat. Not only is their retail business state-of-the-art, but their investments in AWS, tablets, payments, IoT, etc. are complementary, and help to diversify the business (yes, they can do both). Amazon is not your typical pure-play."

 

The phone, the drones

In addition to greatly increased competition from various directions, Amazon has launched a few high-profile shots that have so far failed to materialize or even outright bombed. Its drone program, for example, has something of a dubious future, considering regulations released in February by the Federal Aviation Administration that would bar the drones Amazon envisioned for its “Prime Air” program.

But perhaps Amazon’s most conspicuous failure is the Fire phone, a pricey device that had little appeal, is expensive, and may have been able to accomplish its aims with a well-designed app.

 

No fear of failure

The thing is, none of this likely matters in the long run for Amazon, for the simple reason that failure is baked into its approach to success.

“What really matters is, companies that don’t continue to experiment, companies that don’t embrace failure, they eventually get in a desperate position where the only thing they can do is a Hail Mary bet at the very end of their corporate existence,” founder-CEO Bezos told Business Insider late last year.

“Whereas companies that are making bets all along, even big bets, but not bet-the-company bets, prevail," he says. "I don’t believe in bet-the-company bets. That’s when you’re desperate. That’s the last thing you can do.”

To view the original article please visit: http://www.retaildive.com/news/amazon-no-fear-of-failure/374996/