The New Chip-And-PIN Standard Is Creating A Big Opportunity For The Major Payments Companies

Card networks are pressuring merchants and banks to upgrade their hardware and software. Now, that pressure is creating an opportunity for hardware providers to move in and take market share from their competitors.

The deadline when U.S. merchants and card issuers must switch over to the "chip-and-PIN," or EMV, standard is approaching. MasterCard and Visa have a set a deadline of October 2015, at which point all banks issuing credit cards and merchants using credit card processing hardware will need to make their technology compatible with the new, more secure system, or face fraud liability. The system is already widely used in Europe and other countries around the world, and dramatically enhances the security of cards.

Thus far, analysis from BI Intelligence finds that growth among the big payments processors has been relatively slow over the past year. (Check out the chart at the right.) But that's about to change.

Processors have begun acquiring new payments startups and moved into mobile technology that offer cloud-based analytics solutions and loyalty programs.

And as merchants move over to the EMV standard, payments hardware companies are offering these additional services as a value-add to retain current customers and carve out more market share.

"The new standard is creating a major opportunity for any hardware provider - the big guys, like Verifone, and the small guys too, like Revel. They're pushing hard to get merchants to adopt the new hardware and software," said John Heggestuen, digital payments analyst at BI Intelligence.

New payments startups, like Square, Leaf, and Stripe, to name just a few, have cropped up fast over the past few years, and have been especially effective at getting their hardware and software solutions in the hands of small businesses, according to a recent report from BI Intelligence, which breaks down all of the players involved in each credit card transaction.

Big companies like First Data and Heartland Payments have invested in some of these startups and have begun integrating their tech solutions into what they offer merchants. Now the convergence with the need to upgrade to the EMV standard is forcing that change over in hardware to happen even faster. These new software services are sweetening that obligation.

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Here's a look at what the credit card transaction process looks like now from BI Intelligence: