Will Apple Pay kill the QR code?

apple pay

An interesting question – and of course Apple Pay will not kill the QR code per se, because the QR code does a lot of different things – most notably allowing a camera on a ‘connected’ device to quickly access material without the need to type into the device, and to effect various instructions.

However, with Apple having just ‘raised the bar’ significantly in its launch of ApplePay it will undoubtedly remove the possibility for the QR code to ever gain any ground – or to make any business case again as a payment enabler. The ApplePay infrastructure is very clear now (well it is not clear at all, but we can draw together the following parts of the infrastructure:

a) The adoption of EMV and a well-practiced security is adopted.

b) NFC enabled transactions (whether you like it or not – whether it has an EU or USA adoption rate) – which ensures that the NFC standard is adopted, and they the EMV Co protocols and encryption is present.

c) Tokenisation – to protect the personal details

d) Two/Three factor authentication – i.e. using the scanned fingerprint (or whatever is scanned to validate the transaction) and then Geo-location and/or device profiling too.

e) A reduced costs (interchange fee) and liability protection for pretty much all parties.

So why not do any of this with a QR code? Technically, this is almost all possible, but of course technical possibility and a good idea in the QR codes won’t make this work. Using a QR code produced by a device (that the consumer has) would look pretty, but would mean that:

– The customer has to enter the transaction details to validate – unless another way of communicating with the merchant was created and standardised globally.

– The protections that are in the chip on a card and in the secure area in the device where the card details are stored including floor limits, counts, rules, service codes and resets would all be bypassed.

– The secure part of the chip used and set-up by Apple would have to be accessible by developers to create QR codes – which Apple should never allow (due to a compromised of that secure element (and probably not allowed by the banks/schemes either); and because they would probably not want others to use their rails – due to commercial protectionism.

– Retailers would have to create new software and protocols for reading the QR codes at the points of sale, and then create EMV CO protocols to be used to secure the transactions – which of course would preclude the retailer validation or a two way dialogue with the card / secure element.

– And ALL vendors would have to build standards for this and compete with their proprietary protocols and add massive costs for retailers.

– 3FA or further authentication validation would be impossible/hard to introduce without the EMV / NFC standards backbone.

This creates the underlying problems in:

a) The EMV Co and NFC standards, which require that there is a 2-way hand-shakes and communication with the device and the secure element and a decryption process would be circumvented.

b) The card schemes, who will have required the NFC to be adopted as the communication vehicle for the transactions to be permitted in Apple Pay would be removed,

c) The issuers to allow the transaction to attract the interchange concession, to be transacted using the EMV Co / NFC standards and a channel that can be used to validate the transaction and ensure closed security would be gone.

Accordingly, the security, payment guarantees, standards and security would all be removed or circumvented. So QR codes in the transactions for payments can now never be progressed – as Apple has surely killed it off in one single stroke by introducing something far superior, far more future proofed and adopting all the latest and global ‘industry standards’ to do this through – in a way that no-one else could have achieved and made to happen.

QR codes were only a transient interim technology, that only had a place in small ways to bridge the gap that has now been theoretically bridged.

We have heard a LOT about the impact of the ApplePay announcement on who/what will be affected, but one thing is sure: It has killed the QR code as a payment vehicle – but of course it will ‘live on’ as a very good ‘informational application’ tool where it has been used thus far – i.e. to stop people needing to type various things into a device.

Adopting QR code developments with access to secure elements in the device CHIP is NOT an option, and it is VERY VERY VERY VERY VERY unlikely that the access to the secure element (i.e. the underlying security) will be accessible to TP developers in this way either.

Author Bill Trueman, is an independent Payments, Fraud & Risk Specialist and Managing Director of UK Fraud and Riskskill

Source: https://www.linkedin.com/pulse/article/20140915153149-6227568-will-apple-pay-kill-the-qr-code

Is the US ATM industry making too big a fuss about EMV?

Being based in Europe (though working globally), the U.S. reporting on EMV becomes more and more astounding to me as time goes by. The debate amazes us in Europe, and no doubt, observers globally, mainly because of the extremely strange logic being applied, and the major inaccuracies that are being propagated in the anti-EMV debates. So let’s get some of these issues aired.

EMV is a European thing. This is the most surprising revelation, and people have got to stop, stop saying this. The U.S. principle of “not invented here” does not apply. EMV is a wholly U.S.-developed, -owned and -domiciled solution that Europe adopted because of the mandates to do so coming out of U.S. companies, and because Europe saw the fraud problems looming.

With the obvious exception of Europay (which does not exist today), the original forefathers of EMV — Europay, MasterCard and Visa — are all U.S.-owned, -controlled and -headquartered companies. The EMV standards authorship and member organizations are all U.S.-owned and -based with the exception now of a Japanese and a Chinese company.

The need for EMV was driven by the fraud needs of markets outside of the U.S. coupled with the desire for enhanced cardholder verification and the ability to manage Issuer authorizations, either online to issuer host or offline at an Issuer’s agent — i.e., an EMV-enabled chip card. The European market saw the direction fraud was going; saw increases in domestic fraud losses; saw increasing cross-border fraud problems, not because we have more borders, but because in the U.K. or Germany or France we could measure it and publish it nationally because we collected national data on fraud losses.

And please stop spreading the myth that France was first to adopt EMV. It wasn’t. France was the first country to adopt cards with chips on them, using a domestic and proprietary standard, but these chips contained only low-level security that is associated today with all the inherent problems of the magnetic stripe — skimming, reproducing, counterfeiting, etc.

In Europe, though incredibly challenging to “cut through the treacle” of economic and cultural stubbornness (i.e., red tape), markets collaborated to deploy EMV-enabled cards, ATMs and point-of-sale devices. This was not delivered overnight, but it was delivered through the cooperation of a multitude of stakeholders across the financial services sector, merchant industry segments, suppliers, regulators, and others. It also took significant “championing” skills by the international card schemes — primarily Visa and MasterCard — to educate, facilitate, coerce, and reward or penalize, as the case may have been, and clearly is at the moment in the U.S..

It is also interesting to see that many other key markets and regions around the globe took lessons from Europe — both the positive and negative — to shape their own national and regional migration plans.

The ‘business case’ does not work. Well that is a corker! The business case has been established now in almost every jurisdiction around the globe. I imagine that national markets, individual stakeholders, and card schemes both regionally and globally have prepared their own weighty tomes. I am sure that if we were to read some of these individual masterpieces we would have a little “titter,” but it was a business justification that was required more than a business case.

Why is there no business case made in the U.S. yet? Why has the U.S. not been able to develop a logical, and yes expensive, business justification? I have been seeking out these mythical business cases for the last two years, and every time someone quotes from these ethereal documents, I have asked for a copy. Strangely one never appears.

Business justification is more than just cost vs. revenue. Everyone has looked at the EMV migration as a very long journey — over the long term. This does make it difficult though for a financial services industry that is fixated on next quarter’s performance reporting.

The U.S. does have an exceptional set of circumstances and problems, in that it does not have a single (or even a collection of) industry bodies that have been (or could be) coordinating a business case, costs, and losses; or developing a series of fixed vendor costs along the way.

The U.K. and Canada are just two examples of where this collaborative approach was essential, necessary, delivered and successful.

And if the business case does not exist, then why not? Business justification is more than just bottom line costs vs. revenues. It is about doing the right thing for the marketplace, corporate social responsibility, brand reputation, defending against and managing regulatory interference, new business development opportunities and, yes, the question of ROI.

Have we collectively learned nothing from the debacle at Target, to pick on just one recent case of management blindness?

In developing chips, cards, point-of-sale devices, terminal software, standards, certification requirements and the necessary supporting infrastructure, the hard work has now been done and valuable lessons learned. Key elements are already in place and these things are now all commodities.

The supplier community is ready. Merchants will take some more encouragement, but those with an international footprint already get the message and also wonder why the U.S. is so far behind. Accordingly, the costs of putting ICCs on cards are approaching single-digit percentages of the costs the European early adopters had to pay more than a decade ago at the behest of the U.S.-mandated requirements. The same applies to much of the rest of the infrastructure required.

The U.S. has so many more different suppliers, systems, infrastructures, etc. Hmmm … The U.S. does have a small number of national languages (not dozens) and a single currency (not dozens). Yes, the U.S. political stage is overly complex with federal and state legislature —  not dissimilar to the multijurisdictions of the European marketplace and those playing, or not, in the Eurozone.

Germany, France, Italy, Spain and other nations have local states and languages spread across them, and they’re often much more diverse in these single countries than within the U.S. as a whole. The telecoms-communications infrastructure in Europe has had to evolve faster as there are so many countries and in each one, different standards and architecture.

And rest assured, in most European countries (again, dozens of them), there is a completely different set of issuers, acquirers, processors, POS device suppliers and integrators, gateways, standards for these things and encryption, security, screening solutions etc. There are different European laws about data protection and transmission and privacy — and it goes on. As in the U.S., European players need to be cognizant of international law and how this affects the jurisdictions of the seller and buyer.

Durbin Act — Why this “red-herring” has suddenly become an issue is rather odd. This type of legislation is not adopted in some European countries, but it is in many others. Accordingly, one of the features that EMV had to develop to meet such legal requirements of the EU (and other countries) was multichannel functionality and the opportunity for consumers to be given choice through account selection at the point of sale. Equally, merchants can still facilitate processing options for debit and credit transactions.

Contrary to popular myth, routing logic is not prevented by the introduction of EMV. In fact, EMV functionality makes it easier to determine and communicate at the point of interaction. All that is needed is for all key stakeholders to sort out the legal debate and agree on the business rules.

Would somebody please track down the first person that started to propagate the Durbin EMV fallacy and see why they started this hare running, and would everyone else please check the facts and stop believing it?

EMV does not support NFC. Really? Check the numbers for all NFC-enabled card programs outside of the U.S. EMV supports the pixies at the end of the garden; it is the founding technology behind warp-drives, cloaking devices and time travel; it will make the supper; and it contributes towards world peace. Again all fallacies, though the last maybe nearer to the truth than all the rest put together. But it is this world peace question that is worth debate and thinking about — especially in the context of the challenges of card acceptance in Russia at the moment!

Author of this post is Bill Trueman, who is an UK based independent Payments, Fraud & Risk Specialist and Managing Director of UK Fraud and Riskskill

For more information visit http://www.ukfraud.co.uk/ and http://www.riskskill.com/

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