The ARTS (Association of Retail Technology Standards) has been an influential offshoot of the National Retail Federation for over a decade. In fact, it was an idea hatched before the NRF’s involvement by a retail CIO, Richard Mader, who continues to be its guiding light within the NRF today. When taking on the idea, the U.S. trade association’s leadership of that time understood that standards adoption by technology solutions providers (and particularly store technology solution providers) was important to give retailers some flexibility in their choices, to lower costs, and achieve a faster speed-to-implementation. Technology companies grabbed onto the concept as well and supported it with resources. Thus it was that the NRF was able to successfully promote the adoption of standards for data structures, hardware interfaces, and inter-process messaging that are now accepted by most retail technology providers and used by retailers everywhere.

Like a Ham & Egg Breakfast

The ARTS group remains small within the NRF. But many retailers and technology providers have contributed their expertise and time to developing the standards, and the network of engaged participants is big. The network of those who have benefitted is huge – in fact it’s global. This reminds me of the old yarn about the difference between a chicken and a pig in a ham & egg breakfast (the chicken is involved, but the pig is committed). Virtually every retail business on the planet has in some way benefitted from the ever-evolving standards. But at the ARTS User Conference in Orlando last week, far fewer than 100 actually attended, and virtually every single attendee was a technologist. Notably absent was any line-of-business representation. While this isn’t new (this is the 3rd ARTS User Conference, and its been that way from the start), The level of commitment from retailers – and retail business leaders in particular – needs to increase.

Front & Center

Why? ARTS has been working for several years with other groups to get an agreed-upon set of standards for next generation contact and contactless payments, including mobile payments. As with all of the ARTS group’s work, the focus has been to ensure flexibility, lower costs, and faster speed-to-implementation. This effort is timely because consumers are leading the charge when it comes to new payment types and form factors, and so the need for speed has never been greater.

The big payment networks and newcomers like PayPal and Google are also seeing the opportunity, and changes are happening right now. While there have been the early warnings for years (for example, “chip and pin ” or “EMV ” cards are mandated throughout the rest of the world), VISA made a decisive move in August that forced the issue front-and-center for U.S. retailers, when the giant payment network announced its direction for next-generation chip-and-pin payment form factors. But the VISA announcement goes beyond EMV, as Jim McCarthy, the global head of product at VISA, said:

By encouraging investments in EMV contact and contactless chip technology, we will speed up the adoption of mobile payments as well as improve international interoperability and security… As NFC mobile payments and other chip-based emerging technologies are poised to take off in the coming years, we are taking steps today to create a commercial framework that will support growth opportunities and create value for all participants in the payment chain. “

In a panel discussion about EMV at the ARTS conference last week, Andrew Morris, principal at Morris Advisors, Inc. and a payments specialist, highlighted VISA’s “EMV Roadmap ” this way:

The VISA EMV announcement outlines three objectives:

1. Effective October 1, 2012, VISA will expand its “Technology Innovation Program ” to the United States. As an incentive, VISA will eliminate the requirement for eligible merchants to annually validate their compliance with the PCI DSS for any year in which at least 75 percent of the merchant’s Visa transactions originate from chip-enabled terminals. And this is where VISA has made an important distinction with European and Canadian EMV rollouts: To qualify, terminals must be enabled to support both contact and contactless chip acceptance, including NFC mobile contactless payment technology;
2. Effective April 1, 2013, Visa will require U.S. acquirer processors and ISOs to be able to support merchant acceptance of chip transactions;
3. Effective October 1, 2015, Visa intends to institute a U.S. liability shift for domestic and cross-border counterfeit card-present POS transactions (Fuel-selling merchants will have until October 1, 2017).

Andrew also outlined the following implications to retailers:

• The announcement should be a catalyst for adoption of EMV and mobile payments in the U.S.
• It will create greater urgency regarding need for mobile/contactless payment strategy
• Unless MasterCard, AMEX, and Discover launch similar EMV adoption programs, merchants will still have to validate each year for PCI compliance
• Since most Level 1 and the majority of Level 2-3 merchants are already PCI compliant, the savings will be limited to the $30-55K annual cost of audits
• Meanwhile, merchants will need to spend at least $30 per payment terminal (plus activation, installation, maintenance etc.) to upgrade their POS terminals
• The new upgrade fees will almost surely amount to more than the annual PCI audit fees for most large merchants
• It likely not realistic that merchants could reach 75% contactless transaction threshold until 2016 or later, well after most have spent on POS and PCI

As one might imagine, this raised a lot of questions among the audience, many of them having to do with VISA’s dubious track record for mandating changes, then changing and expanding the mandate, changing deadlines, etc. But fundamentally the concerns were all about cost and risk. As one retailer said:

“I just updated all of my stores, and 1500 terminals at about $1200 each – and now I have to go back to the business and tell them we have to do it again? Why should I do that? “

Lead, Follow, or Get Out of the Way

Retailers are in danger of being caught flat-footed if they don’t organize around this new challenge. And this gets back to the NRF and ARTS. ARTS has been led primarily by interested technologists. The group has driven business value through technology standards adoption. In the absence of strong business leadership that’s an okay strategy. But it’s clearly second best to driving technology standards adoption from strong business leadership and direction. Although it might be understandable for business leaders not to care too much about printer and display interfaces, it would be inexcusable for them not to care about flexibility, lower costs, and faster speed-to-implementation – the very goals that ARTS seeks to promote.

In the face of another payment network mandate (like PCI), that dictates the speed and scope of technology adoption by retailers, business leaders need to get involved and not leave it to technologists to figure it all out. NRF’s membership should be organizing to be heard as one voice. After all, next-gen payments is not really a competitive issue, it’s an industry one.