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Table of Contents

Lead Story

Fraud, data breach concerns drive EMV support

News

Industry Update

Visa, MC allow merchant surcharging

CAPP provides FI security snapshot

ETA promotes Debit AID to assist EMV

NFC Forum SIGs map tech future

Square wins with Verizon, Angie's List

Federal court ruling may impact CFPB

Features

International charity with roots at home

Acquiring Kilimanjaro, an ISO adventure

Mobile marketing and remote mobile payments transform holiday shopping in 2012

Stephen Kiene
First Annapolis Consulting

Research Rundown

Meet The Expert: Biff Matthews

Selling Prepaid

Prepaid in Brief

Plastic Jungle pilots retail gift card exchange

Researcher makes argument against prepaid regulation

Views

Surveying the financial landscape in 2013

Brandes Elitch
CrossCheck Inc.

Education

Street SmartsSM:
Lessons from that first call

Jeff Fortney
Clearent LLC

Confidentiality: A refresher on ISO, MLS obligations

Adam Atlas
Attorney at Law

Sustaining the mPOS (r)evolution

Venkat Kalyanaraman and Sunil Rongala
MRL Posnet Private Ltd.

Small businesses need big data, too

Rick Berry
ABC Mobile Pay Inc.

Company Profile

Super G Funding LLC

New Products

Interactive multilane checkout

iSC Touch 480
Company: Ingenico Inc.

Advanced breach protection

Voltage Secure Stateless Tokenization
Voltage Security Inc.

Inspiration

Take one invigorating step

Departments

GS 10 Years Ago

Readers Speak

2013 events calendar

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

February 11, 2013  •  Issue 13:02:01

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Sustaining the mPOS (r)evolution

By Venkat Kalyanaraman and Sunil Rongala

Mobile devices and payments are two peas in a pod. This is self-evident if we take the growth trajectory of the mobile POS (mPOS) into account. The reasons for the migration from countertop POS terminals to mPOS are portability, a comparable level of security, form factor and - most importantly - lower cost.

For most developing countries, cost will be a primary factor in determining the success of mPOS implementation; the relatively higher cost of countertop POS terminals has limited their spread.

The proliferation of mPOS is critical because it ties in with the plans of central banks, which are promoting electronic payments in lieu of cash. Electronic payments are an economic stimulus and have low transaction costs.

The current situation

Mobile POS terminals are available that are approved by the Payment Card Industry (PCI); accept mag stripe and Europay/MasterCard/Visa (EMV) cards; and are priced below $30. And their prices are likely to decline as volumes increase. (This doesn't include the cost of the phone; however, businesses typically do not purchase mobile phones for payment acceptance, so mPOS is likely a function they will add to a phone already in use.)

This low cost makes mPOS viable in countries where acquirers absorb the asset and maintenance costs of countertop POS equipment. For example, the asset cost in India of a countertop terminal at the lower end is about $110 (after adding import duties), and the maintenance cost comes to about $7 a month. For this to work economically, merchants must do business of about $3,000 to $3,500 a month, assuming a 20-basis-point spread.

Most small to midsize merchants do insufficient business to cover the cost. Thus, the reason the spread of countertop terminals has stagnated in India in recent years is no mystery.

PINs and PEDs

Countries in Europe, Asia and regions of South America have a large number of PIN-based cards. In India, all debit card transactions will have to be authenticated by PIN as of April 1, 2013.

This is already the case in a number of countries. In fact, over 50 percent of POS transactions are currently being made with debit cards. Thus, for mPOS to be implemented, as a practical matter, cards have to be PIN-authenticated, or mPOS will be marginalized.

Cardholder PIN authentication has to be done on a PIN-entry device (PED). Two types are in use:

The question and its solution

Therefore, we ask the pertinent question: What is the best solution - balancing cost and security - that can sustain the mPOS (r)evolution worldwide? For mPOS to succeed, it should be capable of safely accepting magnetic and EMV cards, as well as safely authenticating PINs.

A solution that balances cost and security is a PCI-approved mag stripe and EMV card reader used in conjunction with one of the two following options:

The solution of using either OTP or OBA with a mag stripe plus an EMV acceptance device also works because:

Adoption of mPOS will take off throughout the world when the payments industry begins to grasp that transactions can be both secure and low-cost.


What are OTP and OBA?

A one-time password (OTP) in the payment processing realm is a password that is valid for one transaction only. The strength of OTPs is that, unlike PINs, they are not vulnerable to multiple attacks, and should they be intercepted by fraudsters after they are used, the criminals will be obtaining worthless data that is no longer valid.

Out-of-band authentication (OBA) is a way of authenticating transactions that uses two separate channels simultaneously to identify users. In payments, one channel used for OBA authentication is typically the network used by the merchant's payment acceptance device; a cellular network is commonly the other channel. This makes it unlikely a hacker or malware could access or infect the entire authentication process.


Venkat Kalyanaraman is the Chief Infrastructure Officer at MRL Posnet Private Ltd., a technology-driven transactions facilitator based in India. He holds a Masters in Business Administration from the University of Texas in Dallas. Sunil Rongala, MRL Posnet's Head of Risk Containment and Business Strategy, is a professional economist and holds a Ph.D in Economics from Claremont Graduate University in California. Email Kalyanaraman at venkat@mrlgroup.in and Rongala at sunilr@mrlgroup.in.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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