Preparing Merchants for Change

Preparing Merchants for Change

Merchant Strategic Leadership Team ACT Canada

This whitepaper, prepared by the ACT Canada Merchant Strategic Leadership team, looks at the issues of changes to payment process from the perspective of the retailer.

Merchant Strategic

Team

Leadership Team (MSLT) in 2008.

Forum for discussing the implications of new polices, technology, debit and credit products, and security requirements on merchant payment systems.

ACT Canada formed the Merchant Strategic Leadership Team (MSLT) in 2008 as EMV credit and debit cards were entering the Canadian market.

The objectives are to better plan for the future, to protect and leverage existing investments, and to improve the consumer experience.

Merchant Strategic

Team

 ACT Canada

 McDonald's Restaurants of Canada Ltd

 Air Canada

 MEI Inc

 Best Buy Canada

 Ontario Lottery & Gaming Corp

 Canadian Tire Financial Services

 Overwaitea Food Group

 ExxonMobil Business Support Centre Canada

 Petro Canada (a subsidiary of Suncor Energy Inc.)

 Grand & Toy

 Pharmasave

 Hudson's Bay Company

 Shell Canada Limited

 Imperial Oil

 Sherson Group

 Indigo Books & Music

 Shoppers Drug Mart

 The Source (Bell) Electronics Inc

 Tabi  LCBO  Ticketmaster (IATS)  Loblaws Inc  Tilley Endurables  LoyaltyOne Inc.  Wal-Mart

 Macs Convenience Stores Inc

 Winners Merchants International

Active and Auditing Members of the Team

White Paper Background

 Educate payments stakeholders on the merchant environment and the effect of changes to their payment systems.

 Encourage cross-industry collaboration in planning for & implementing new payment initiatives.

 The paper includes recommendations intended to encourage dialogue amongst the participants in the payments industry, including merchants

The Merchant Team decided that given the rapid development of changes in the

payments community, many which do not seem to align with each other, now would be a good opportunity to explain our environments and request that card associations, acquirers and issuers work with the merchant community to build an innovative and positive experience for our mutual customers.

Role of the Payment System

Primary role of a merchant is to sell

goods and/or services.

Payment Systems are an enabler to this

role.

The Payment System needs to be

reliable, stable and low cost.

A merchant is attempting to sell goods to an end customer. They want to do this in the most efficient and cost effective manner possible. This includes payment innovation. It cannot however be at risk to the stability of their selling experience or payment system. We understand changes are necessary but need to ensure that they are done in the most cost effective and efficient manner possible for our businesses and our guests.

Payment System Costs

Payment System costs and the

systems/infrastructure required to support them, are significant and material for merchants.

Changes need to be managed within

natural business planning cycles.

When changes occur during a budget cycle, either because of direct cost increases or a mandated project to support compliance, there can be a significant and material impact on finances, profitability and other scheduled activities.

Merchants have other projects and initiatives underway, they cannot simply change their entire business plan to meet payment system compliance requirements. We recognize the need for change but need to do so in an orderly fashion that recognizes the scope of

the change both operationally and financially, and each industry has different capabilities from a payment perspective.

Payment System Changes

 Early communication is required to allow for appropriate prioritization, scheduling and budgeting.

 Changes need to be fully scoped and ‘locked’.

 The impact on the end user, in this case the sales clerk or cashier, should not be underestimated.

 Payment systems changes impact many levels within an organization, particularly for large integrated retailers.

The merchant environment is no different than any other business. To allow for accurate budgeting and project planning, it is important for changes in pricing and requirements to be identified and communicated as early as possible so that accurate forecasts can be developed, and any projects can be prioritized and scheduled as efficiently as possible.

Before any project can be scheduled, requirements need to be fully developed. In a situation where multiple payment networks need to develop and communicate requirements (e.g. EMV), the merchant’s project cannot be scheduled until the last payment network releases its requirements.

Payment System changes impact many levels of a merchants business and technology systems. For large integrated merchants, it means change to devices, software,

accounting, operational and business systems. ~ I.e. EMV – new POS software, host level changes, devices…for us alone this project is a 50-60M project, excluding internal resource costs.

The impact on the end user, in this case the sales clerk or cashier, should not be underestimated. These are minimum wage jobs and English is often not their first language…we need to give them time to learn and experience new technology…too much change too fast will create a lesser experience than we want with our guests.

The Suncor EMV Example

$2-4M, 6 Month Project

Host Software Modifications $1M, 12 Month Project

POS Software Modifications $2M, 12 Month Project

Accounting/Settlement Modifications 3 Month Project

New Pay at the Pump Devices $50M, 5 year Project

Total Cost: $57M Dedicated Project Time: 2.5Yrs

Changes to a merchant environment require multiple levels of change….let me

demonstrate by explaining the process for our firm to move to EMV….the whole process started 4 years ago with new pin pads…these are now out of compliance with PCI, and need to be replaced in the near future…another $2M.

Pin Pad devices, are not simply swapping them in and out…they are connected to a POS system, and many other merchant level initiatives potentially…loyalty programs, proprietary card programs…testing and quality assurance programs take months to complete, and even before you get to this phase you have months of development. Host and POS Software modifications are expensive and need to be aligned with existing merchant programs. Multiple payment scheme requirements for an ‘EMV standard’ make it more complex, costly and time consuming. Our IS team is fully engaged and spending a full year and a half completing this project from end to end ….no other projects are slated during this time.

Changes to payment systems, even those such as EMV or Contactless technology, require settlement and accounting changes, as they are integrated systems for large merchants.

For the oil and gas industry we have a unique issue in that we offer Pay at the Pump services to our guests which are not EMV compliant…the cost of new hardware is upwards $50M for us alone…over $100M for the entire industry…with no return on this investment…there is nothing new or unique about this technology….to add to the problem…there is a desire to have greater contactless offerings at the pump, but the manufacturers are not ready…alignment amongst the varying players in the payment industry is critical…timelines and mandates must match what is possible and feasible for all.

Collaboration

 Competition and technology are leading to an ever wider array of payment options for consumers.

 EMV

 PCI

 Contactless Technology

 Mobile Payments

 Advanced Loyalty Programs

 The consumer will decide which payment types are successful and which are not.

 Merchants will decide which payment options can be implemented.

The future is bringing forth an array of new payment options for consumers. Merchants want innovation from the payment industry however; we need to do it better in the future. Consumers will choose which options they want. Merchants will choose which options they can operationalize… We are asking for greater collaboration to ensure that merchants can offer this wide array of choice to consumers. Consistency in the

requirements for payment system changes, at a device, software and an operating rules perspective are necessary to provide this level of choice.

We need to avoid the mistakes of the past… Merchants are calling for greater

collaboration across the payment industry. EMV and PCI have been costly endeavors for all parties involved. Could they have been implemented better and faster? I don’t know…but there are things we can learn from these initiatives, and one of the key learning's is that collaboration amongst all parties – issuers, card associations, acquirers, device manufactures and merchants is required for payment system changes. We may not all agree on the changes, but at least lets work together to understand each other’s environment and the best way to drive innovation for a better consumer experience.

Recommendations

 Cross-industry Forums

Cross-industry collaboration is needed to manage the evolution of payment systems. More opportunities be created to have merchants included in reviewing and planning for new technologies that may have an impact at the point-of-sale.

A cross-industry forum be established, including issuers, acquirers, payment networks and merchants to address the implementation of advanced technologies involving all parties.

This team could be used for:

Consultation with merchants by other payment system participants to:  Help participants understand and appreciate the merchant

environment

 Set realistic timeframes for implementation of new products and services

 Improve the consumer experience at the point-of-sale

Cross-industry cooperation on non-competitive issues such as messaging for merchant staff and consumers at the point-of-sale and common

communication messages for new products and services Developing best practices for payment industry initiatives

Gaining a common understanding of initiative objectives and requirements so all participants can make more informed decisions

For more information about merchants and payment, visit www.emv-usa.com /