By Frederick Felman, Recurly
Most people will recall the predictions of doom and gloom associated with the now-forgotten ghost of Y2K. EMV seems to have been launched with similar anticipations of disruption and grief, only to find that it’s been met with a collective shrug. Only around half of “big retailers” had EMV-capable terminals at the time of the liability shift last October, while something less than 33% or so of smaller retailers were in compliance.
A recent report by The Strawhecker Group (TSG) in February indicates that only 37% of U.S. retailers were able to process chip-card transactions four months after the initial deadline, and it’s expected that just 50% of retailers will have the terminals installed by June 2016, with a 90% threshold reached by 2017. What’s caused the slow adoption?
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EMV-compliant terminals are expensive and adopting them is problematic. Many terminal manufacturers in the U.S. simply weren’t prepared to deliver the needed hardware in time. Cost was also a factor that affected smaller merchants in particular, who decided the financial risk from card-cloning fraud was less clear and less ominous than the costs to upgrade their equipment and train staff.
Compounding the situation: Even when the terminals were installed, many merchants trying to get the necessary certification to begin using them were faced with delays of several months. As well, there’s been little support from developers to update the software needed to run the new technology. For example, restaurants need software that accommodates tips and tip adjustments.
The new technology is confusing and slow. For merchants who have the technology enabled, consumers are finding the terminals confusing to use initially and slow to authenticate their transaction. Many merchants wanted to wait to install their terminals until customers learned how to use them — at other retailers! This was particularly true during the holiday season when retailers wanted to ensure a fast checkout. In addition, while millions of new EMV cards have been issued, many consumers still have not received theirs.
Fraud is an ever-present threat. While the new EMV cards are meant to address point-of-sale fraud, the technology is not a cure-all. Fraudsters are creative and determined. And often, efforts to fight fraud in one realm simply result in increased fraud in another. Both brick-and-mortar and online merchants have seen an increase in fraud, and they’re watching the trends and putting their resources toward the areas that seem most vulnerable.
It’s worth noting that the impact of EMV cards to subscription services has not been borne out. It was expected that the new EMV cards would cause issues in approving recurring transactions, as new cards often have a new expiration date and credit card security code. But businesses using account updater services, which update changed information automatically, likely saw little to no interruption in their recurring revenue streams.
While the launch of EMV technology has not been the watershed event that was initially expected, and while adoption has thus far been slow, EMV cards will eventually replace the old stripe cards. When that happens, the industry will finally have an accurate view of how effective the new technology is at preventing point-of-sale fraud and how much fraud has subsequently moved online.
In the meantime, merchants both online and off should continue to stay vigilant in their fight against fraud, as the threat is persistent and ever-evolving. Fraudsters will continue to hone their tactics and look to breach retailers’ defenses, online or off.
Frederick Felman is the chief marketing officer for Recurly, a company that provides an enterprise-class subscription management platform for thousands of subscription-based businesses. For the past 25 years, Fred has made his career marketing consumer and enterprise technologies, and has had success building high-tech businesses, brands and categories. Most recently he was Chief Marketing Officer at MarkMonitor and the Brand Protection Business Unit at Thomson Reuters. Fred received his Bachelor of Science in Business Administration from the University of Southern California. He lives in San Francisco where he sometimes skillfully avoids collisions with Teslas on his bicycle route to work.