Erik Vlugt is responsible for North America product marketing, which includes retail, petroleum, and financial channels. He was appointed to his current position in 2010. Previously, he was Director of Product Management for Integrated Solutions, helping to drive and execute the global product strategy for integrated products.
PJ: How do you think VeriFone can be instrumental in the migration to EMV in the U.S.?
EV: We’ve been helping customers around the world with EMV migration for more than 10 years. That work is ongoing in Canada and some European countries, and there is a tremendous education effort underway in the U.S. As with all forms of payments complexity, our customers look to us for recommendations on how to proceed, so that the products they buy today will be viable when EMV becomes fully implemented. Many of our customers have made that transition. These customers will be able to simply implement a software upgrade once EMV becomes a de facto requirement. For most, this will occur with the liability shift in 2015. Many will be able to do this quickly and easily through remote software updates using our VeriFone HQ estate management solution.
PJ: Regarding EMV, is it fair to assume the United States can learn from what other countries did in regards to the transition and learn from their experiences?
EV: There certainly are lessons learned from overseas adoption, but in the U.S. there are unique aspects to address. In every other country that embarked on EMV adoption, either the government was involved or Visa and MasterCard were 100 percent aligned on adoption guidelines and requirements. In the U.S., Visa and MasterCard aren’t exactly in lockstep with their milestone guidelines. That’s created confusion over whether EMV can be implemented with just chip-and-signature, or whether merchants need to prepare for chip-and-PIN. Here, the government for the most part is allowing the market to determine adoption requirements, but there are unique issues around the Durbin Amendment to the Dodd-Frank Act and how debit networks are switched in an EMV environment.
PJ: What kinds of services are merchants expecting to see offered by payment processing providers?
EV: EMV adds a new layer of complexity to managing payments, and merchants are looking for information, guidance and assistance in preparing for the transition. They will move into an implementation phase in the not-so-distant future. We’re working with the acquirers and processors to ensure that EMV transactions at the point of sale can be processed when merchants need to turn on that functionality. Currently, only one or two processors can handle an EMV transaction, but this year all or most of the others will be able to do so. Over the next year or two, we’ll start to see actual EMV transactions flowing through the system. Once we hit the 2015 deadline for the liability shift — in every market segment except petroleum where the deadline is 2017 — merchants are going to need an ongoing relationship that guarantees smooth updates and assured compliance with the standards governing contact and contactless EMV, as well as the ability to accept different types of mobile wallets. Payments are not static and increasingly this means merchants and vendors must engage in long-term, services-based relationships.
PJ: How does marketing content delivery factor in VeriFone’s current and future business agenda?
EV: Well, we have millions of screens deployed with which consumers are interacting every day. Over the last few years we’ve made sure those screens are capable of displaying digital content at the point of transaction, so retailers can utilize their POS systems to further engage consumers with loyalty, discounts, offers and other value-added content. Our taxi business is a great example of how this comes into play — the average ride in the back of a New York taxi is 11 minutes, so advertisers and marketers view this as an extremely targeted and highly measurable opportunity to engage with the consumer. We’ve partnered with organizations such as NBCUniversal, which has a rich library of video as well as current information — such as today’s weather report.
We’re implementing a similar model in the petroleum space, where we can provide a compelling business case to help retailers cost-justify upgrades for PCI and EMV compliance. With these media capable screens they can generate incremental revenue also promote in-store sales. In November, we implemented the first “play at the pump” lottery sales capabilities in Minnesota. So a market that historically has been very resistant to upgrading to new payment requirements is now incented by our ability to create a business model that underwrites their costs through content and advertising.
PJ: VeriFone now is a partner as well as a competitor to the eBay-owned PayPal business. How is the PayPal partnership beneficial for VeriFone?
EV: Our focus is on the merchant and making sure that they are able to take advantage of new payment opportunities and related services that will enhance their businesses. Whether it’s PayPal, Google, Isis, or some new payment alternative, our focus is on providing a payment platform that allows merchants to turn-on — and turn off — new payment functions, whether its NFC, cloud wallets, whatever. PayPal, Google and Isis realize that VeriFone’s 75% market share in the U.S. large retail space represents the preferred path to the merchant checkout counter.
PJ: In the past few years, the payments industry has witnessed some of the worst data breaches in history, whether it be online or at the point of sale. How does VeriFone continue to stay ahead of the criminals when it comes to data encryption and protection?
EV: Obviously, to be viable in this market, you have to keep pace with security standards. We’ve gone beyond standard compliance. Several years ago, we introduced new end-to-end encryption technology and we’ve subsequently integrated tokenization and RSA technology in our VeriShield Total Protect solution. In order to be immune to breach risks, you need to eliminate cardholder data from your payment infrastructure. The way to do that is to encrypt it the second the card is swiped and only decrypt it once the data has moved as far upstream as possible. This eliminates potential points of compromise in merchant systems or networks. Our solution decrypts the data at the processor– we have relationships with 9 of the top 11 U.S. processors, who now accommodate merchants with this. That doesn’t mean merchants should not worry about intrusion protection, or PCI compliance, or how they protect their Wi-Fi networks. Security is ultimately implemented in a number of layers. If you start by eliminating the most sensitive data, you’re ahead of the game.
PJ: Is there even more emphasis on protecting cardholder data now that the mobile phone can do the job of a counter terminal?
EV: There definitely should be. But with so many new entrants in the payments space there’s certainly greater risk, which represents a danger that many merchants. Smaller businesses especially are largely unaware of this risk. Some merchants think new mobile technologies automatically protect them from breaches, but mobile payments, mobile wallets, and even EMV do not inherently secure card transaction data. When you access your mobile wallet by tapping your NFC phone on or inserting your EMV card into a POS device, the card data still travels through the infrastructure in an unencrypted form. If that data gets stolen–and it very well could–it still constitutes a PCI breach. Merchants should strive to implement end-to-end encryption and tokenization.
PJ: As the industry leader in the space, how does VeriFone continue to keep that competitive advantage?
EV: Simple – an intense focus on delivering solid solutions and services for our customers and making sure we deliver secure, robust, innovative and customer friendly hardware and software products. New players come and go but VeriFone has been very adept in maintaining leadership. Despite all the current focus on the low end of the market — with multiple new entrants targeting the micro merchant segment — larger retailers value scale, breadth of portfolio, ability to deliver comprehensive services, and long-term viability. Our size, expertise and market share allows us to be on the forefront of emerging technologies and to work on integrating them with existing infrastructure. When you look at the challenges ahead, our customers value above all else a trusted relationship with a vendor that can deliver added value. This involves getting people ready for EMV, educating on use and integration, and providing an infrastructure to help retailers embrace mobility and add new functions, such as media and advertising.
PJ: Recently, VeriFone announced it will work with Isis to provide NFC-enabled equipment as mobile payments continues to grow as an option. Like the migration to EMV in the U.S., what role does VeriFone play in the adoption of smartphones being used to make purchases at the point of sale?
EV: When you look at the history of alternative payments over the past decade — biometrics, decoupled debit, and on and on — we’ve seen a lot of interest on the part of developers and investors, but almost universal resistance by retailers. There’s a good reason for this; retailers, especially the largest, have tremendous investments in existing acceptance devices and infrastructure and the last thing they want to hear is that they should ditch everything for the latest flash in the pan. Winning retailer acceptance for new technology is a long, hard slog and it requires investment in pilots and education and support. This is what we’re doing with EMV in the U.S., working hard with early adopters and making sure that we can convince the so-called “early majority” and “late majority” that they won’t get burned with “experimental” technology and that they’ll be able to migrate in a relatively smooth manner. Similarly, with mobile wallets, we’re working intensely on pilots with early adopters to determine the right formulas for adoption, whether the wallet is from Isis, Google, PayPal or whomever. The hundreds if not thousands of merchants that aren’t part of early pilots today are watching intensely because they know they can’t afford to lag too far behind or they’ll lose the competitive edge. Those retailers look to use to provide guidance because relatively few of them have the resources to stay plugged into everything that is going on in payments today.
PJ: On the international front, how does VeriFone’s recent acquisition of Point help with foreign markets?
EV: Point represents acceleration towards a services-oriented industry, what we have termed payments-as-a-service. Long-term viability requires that those in the industry provide more than just a piece of hardware, but rather focus on providing ongoing services that enhance the value of that equipment with remote update capability, real time estate management capabilities, warranty service and, most importantly, the ability to integrate value-add applications without requiring wholesale retrofitting. The pace of change will continue to accelerate – that’s the nature of technology – and you only have to look at the three-year planning cycle for PCI DSS to realize that retailers can’t just stand pat because what they’re using today seems reliable. Point provides a fully managed, all-in-one service that ensures merchants can just push a button to upgrade software across their estate and enable equipment to accept a particular service, payment, or add advertising. This ties in with everything we’ve talked about to this point — payments are getting more complex with mobile, NFC and EMV, but there we’re also on the verge of tremendous expansion in value added applications that couldn’t have existed in an environment where you had to physically upgrade every machine one-by-one, either by sending out a tech or shipping devices back for retooling. We can now provide a more complete 360-degree view of what payments, acceptance, and consumer interaction really should look like.
PJ: Besides EMV and mobile payments, what other areas will have a profound effect on the terminal market going forward?
EV: We’ve covered a lot of ground to this point, but there will be other things to come, much of which we really know little about today. We can all guess and make predictions, but the fact that we don’t know underscores the need for merchants to align with a supplier that is plugged into those emerging technologies and developments and able to integrate the new with the old, or at least provide a smooth and dependable migration path. Customers chose VeriFone because we provide them with options for everything that’s going on today as well as everything that will come in the future.
About Erik Vlugt
Vlugt joined VeriFone in 2004, serving as Sr. Product Manager for Customer Facing Devices. In this capacity he helped define and drive the development of the MX line of products. Prior to joining VeriFone, Mr. Vlugt held various consumer electronics product management and technical marketing positions at TDK Corporation and ShareWave, which was later acquired by Cirrus Logic.
Mr. Vlugt is a native of Holland and he obtained his degree in Computer Science and Business in Amsterdam. Follow @ErikVlugt on Twitter.