Data Breaches: EMV Compliance is Everyone’s Responsibility
It has been about five months since the Target data breach made the vulnerability of retail POS data a hot topic. Investigation has since shown the Target breach did not involve POS terminals. However, high-profile thefts of customer payment card data from Target and other retailers including Neiman Marcus, Michaels and Sally Beauty Supply have highlighted the need for U.S. retailers to adopt the global Europass, MasterCard and Visa (EMV) standard for accepting payments from cards that store consumer information on secure embedded microchips, rather than on magnetic stripes.
Everyone’s Talking, But No One’s Getting EMV
Despite widespread recognition of the substantial security benefit EMV compliance, not many retailers are doing much about it. Target recently announced that it plans to incorporate MasterCard chip-and-PIN technology (which adds another security layer of verifying customers by secure PIN rather than signature) across its Target-branded REDcard portfolio by early 2015, and is converting existing payment terminals at its stores this year ahead of schedule.
A few other large chains, such as Wal-Mart, have also made some movements toward EMV compliance, but most retailers have not. The primary issue, no surprise, is cost. The NRF has estimated it would cost $20 billion to $30 billion in hardware and software upgrades during several years to bring the U.S. retail industry into general EMV compliance. And the chip-enabled cards themselves cost a couple of dollars each.
Considering the staggering financial cost of achieving retail EMV compliance, it is neither realistic nor fair to expect retailers to foot the whole bill. But retailers do need to pay their share. Following are brief explanations of why both retailers and financial institutions need to help pay the price of EMV compliance.
Retailers Could Lose It All
As of October 2015, liability for reimbursing customers who are victimized by POS data theft shifts from financial institutions to retailers, if the customer was using an EMV-compliant card and the retailer did not have EMV-compliant transaction technology. But the costs go far beyond potential reimbursement of customers.
Data breaches incur hefty costs in hiring security experts to review the breach and taking remedial steps to improve security, not to mention potential exposure to consumer lawsuits. They also erode consumer trust, resulting in lost sales and lost customers. Thus the after-the-fact costs can last for years, making preventive investment in EMV-compliant POS technology before a breach happens a wise long-term investment. But retailers are not the only ones who stand to lose in a POS data breach.
Financial Institutions Have a Stake
Card issuers, banks and other financial institutions have prudent reasons to help the retail industry shoulder the burden of paying for EMV compliance. First, there will never be widespread availability of chip-enabled payment cards unless the card issuers pay for them, meaning the fraud liability shift to retailers will be more theory than fact.
Second, high-profile retailer data breaches erode consumer faith in payment cards as well as in retailers. Especially as non-cash alternatives to payment cards, such as PayPal, Bitcoin, and even apps provided directly by retailers, become more prevalent, payment card issuers need to maintain public faith in their services. And banks hardly benefit when customer accounts are drained by fraudulent purchases.
So EMV compliance is everyone’s responsibility, for self-interested financial reasons as well as reasons of basic fairness and consumer protection. Leaders are taking the first steps, who will follow?
Overstock.com launches multichannel fulfillment services
Overstock.com is looking to improve its supply chain, and to that end the company has launched Supplier Oasis Fulfillment Services, a wholly owned subsidiary that provides multichannel fulfillment services.
"The launch of Supplier Oasis Fulfillment Services reflects our dedication to stripping costs from the supply chain,” said CEO Patrick M. Byrne. “Our warehouses, expertise, reporting, and dedication to cost-savings are now available to sellers, suppliers, and partners. Starting today, all of those businesses can optimize their operations across all sales channels."
Suppliers currently have access to warehouse space in Salt Lake City, Utah, and Jonestown, Pa.
"Supplier Oasis offers a single integration point through which partners can manage their products, inventory and sales channels, while tapping into a world-class distribution network," added Byrne, "These benefits translate into a substantial advantage in this highly competitive marketplace."
Three Ways to Fight Back Against Rising Costs
By Chris Horacek, VP, BravoSolution, the supply management company
American shoppers are in a sea of sticker shock. Rising retail prices are dominating store shelves and in turn, are hurting consumers’ wallets. Food prices have been hit especially hard — skyrocketing by more than 4% in February alone, which represents the biggest jump in more than two years.
With consumer discretionary incomes shrinking, retailers can’t pass all these costs along to their customers. However, if retailers aren’t passing along the costs, how can they protect their slimmer-than-ever profit margins?
The answer lies in the supply chains of the most successful retailers that have found new ways to cut costs and as a result, keep customers coming back. Here are three strategies that are separating retail leaders from the laggards.
1. Source Smarter
All too often, retail supply chains are littered with opportunities to slash costs. Supply management teams only need to step back and think more strategically about how they interact and select suppliers, and spend their money.
For example, retail parent companies that have multiple store brands often have multiple contracts, at varying prices, for the same product – even if they are all using the same supplier. Similarly, one supplier may be used across multiple product categories and corporate divisions, but yet again, a retailer may have multiple contracts with that supplier.
These discrepancies and variances can cost retailers millions of dollars every quarter. To solve the problem, retail procurement and supply management teams must start by getting better visibility into their total spending across the supply chain – drilling into specific categories, product lines, departments and corporate brands.
From there, retailers can identify new ways to consolidate suppliers and overall spending, ensure consistent pricing and benefit from volume-based purchasing. The result: on average retailers can lower costs by two-10 times, just from smarter purchasing approaches.
2. Conquer Transportation Sourcing – Finally
Transportation is often the most difficult category to source; however, the effort reaps big rewards considering it typically accounts for 20%-30% of a product’s total cost.
With hundreds – or thousands – of transportation carriers, and rates that change daily, constantly ensuring that the optimal transportation mix is in place is a tremendous burden. Supply management teams must make fast, critical decisions based not only on price, but also on-time delivery rates, capacity and service fees (fuel surcharges, handling customs, etc).
The only way to be effective is to make decisions based on data, rather than hunches. Retail teams need an apples-to-apples comparison of the true costs, benefits and risks of each transportation scenario so they can make informed decisions about the trade-offs of each transportation mix they’re considering (mode versus capacity, versus lead times, etc.). Having this data sets the stage for growth, new savings and more efficiency.
3. Keep Stores Running – Without Breaking the Bank
Once products actually get onto store shelves, there are still opportunities to save. The bigger the store, the more it costs to maintain. On average, facility management and services, including janitorial services, building maintenance and security, account for seven-10% of the cost of goods sold.
Retailers can cut facility services costs by using some of the same strategies discussed earlier for sourcing merchandise. Retailers typically use multiple suppliers for various parts of facilities management – one supplier for snow removal, another for parking lot maintenance – even though there are suppliers that can take on multiple services, at a lower cost to the retailer. One big-box retailer has tripled its savings in this category by doing exactly that.
Another hidden cost: national facility management suppliers often have different costs for each geographic region, but only list an average price in a contract. Retail supply management teams can uncover even more savings by better understanding the costs and service differences between local and national providers. In many cases, the national vendors that retailers partner with may already be subcontracting with local suppliers – and keeping the price savings.
The common denominator for all three strategies: spend and supplier visibility. With no end in sight of rising costs, uncertain commodity prices and declining discretionary spending, it’s more important than ever for retailers to uncover new ways to improve margins and profitability. That begins with the supply chain.