Pub. 6 2017 Issue 1

9 s p r i n g | 2017 s we begin a new year, the change in the US payments system continues at breakneck speed. Driven in large part by the migration to EMV, the introduction of tokenization, and the focus on faster payments, the change will continue throughout 2017. From issuers to merchants, there are lessons to be learned from our experience so far, and opportunities to take advantage of moving forward. In 2016, merchants and issuers continued the migration toward EMV. Thousands of merchants, eager to prepare for the liability shift, rushed payments solutions to their brick and mortar stores before routing solutions were available for EMV. Most didn’t fully understand the costs and benefits of those machines. Issuers did the same thing hoping to beat an artificial deadline imposed by a few organizations with significant market influence. Most merchants didn’t realize, and are only starting to now understand, the im - pact of not programming their terminals with the routing choice and capability they wanted. Instead, they got out-of-the- box proprietary solutions that restricted routing choice. This proprietary technol- ogy started many merchants and issuers down a path that eventually could evolve into the elimination of routing choice altogether. As proprietary technology is more widely adopted and open standards left behind, interoperability is harmed and the owner of the technology gains power and control. We saw a challenge to that power in 2016. Lawsuits and legal battles piled up as merchants began to push back over the issue of choice. Some merchants wanted to mandate use of the PIN. They chal- lenged rules restricting routing choice based on how a consumer authenticates a transaction. You have to ask yourself: Could all of this confusion and conflict have been avoided? The simple answer is yes. We should require all transactions to have consumer authentication that’s captured at the point of purchase regardless of the form of pay- ment. That authentication should then be passed to the issuer for validation. This authentication solution has existed for more than 40 years in the form of the PIN. Some argue the PIN is static, but so is the token saved in your mobile wallet. Some say the cryptogram is dynamic because the value changes each time, but the PIN is owned, controlled and can be changed by the consumer. The challenge is not all transactions require a PIN. If they did, much of this complexity could’ve been avoided. The security improvements of the chip technol- ogy are valuable and, combined with a PIN, make the card a much more secure payment device. When payments are based on widely accepted standards, the system runs smoothly, competition for payments flourishes and the environment is ripe for innovation. When payments solutions are based on proprietary technology, controlled choice and flexibility and, ultimately, interoperability and competi - tion are impacted. Unfortunately, 2017 holds more of the same. We’ll find out more about the legal challenges surrounding where and how consumers are allowed to use their cards, how merchants are allowed to protect those transactions and how that may impact you as the issuer. You’re REQUIRED to participate in more pro- grams without any control of the what or the how. It’s also likely we’ll see more consumer frustration. The news isn’t all bad though. The year 2017 also holds opportunities to expand choice and flexibility for mer - chants and issuers. The traditional PIN debit networks are providing new opportunities by extending their existing capabilities into tradition- ally signature-only market segments like online retail, restaurants and hotels. PINless and new signature transactions can provide significant benefits to issuers and merchants by extending routing choice and payment competition. We think this may be the first of many instances to come where synergies emerge between the mer- chants and issuers. Future collaboration between these groups can lead to a better payments system for everyone. It’s been a bumpy migration as payments solutions continue to evolve. The choices we make as an industry and howwell we learn from experience will largely determine howmuch we smooth the way forward in 2017 and beyond. Paul’s involvement with SHAZAM began in 1999 when he joined the SHAZAM / ITS, Inc. board of directors. He participated on the board’s executive committee for 10 years and served as board chairman from 2009 to 2012. In 2014, Paul was named executive vice president and chief operating officer of SHAZAM/ITS, Inc. He’s since been named president and chief executive officer. Prior to joining SHAZAM, Paul was chief operating officer at First American Bank in Clive, Iowa, from 1999 to 2014 and was senior vice president atAmerUs Bank in Des Moines from 1996 to 1999. He served in several positions, including vice president, at Council Bluffs Savings Bank in Council Bluffs, Iowa, from 1980 to 1996. F E A T U R E By Paul Waltz, President and CEO, SHAZAM