This is Part 1 of a three-part feature covering Payment issues in retail. Part 2 will appear in the May 7 newsletter.
With credit card issuers and retailers dragging their heels, how long will it take for EMV to really take hold? And how painful a process is this going to be?
The retail industry is currently facing the perfect storm for migrating from magnetic stripes to more secure EMV enabled smartcards. Europay, MasterCard & Visa (EMV), the global and interoperable standard for payments cards, was set nearly two decades ago. Payment networks and international retailers alike agree that EMV is one of the most effective security safeguards against fraud. And the U.S. currently accounts for a whopping 47% of global credit and debit card fraud, according to a 2011 report from The Nilson Report.
Yet the path to widespread adoption of EMV chip cards has been painfully slow among U.S. players. In fact, a survey released by ACI Worldwide, an international provider of payment systems, reveals that 56% of respondents say retailers are “unprepared” or “very unprepared” to meet U.S. EMV migration deadlines. Only 2% of respondents think retailers are “very prepared.”
In another recent survey, conducted by Retail TouchPoints and sponsored by Motion Computing, almost half (49.5%) of retailers reported that they have no plans to add EMV-compatible terminals, and just 9% have them installed to-date.
It’s not for lack of encouragement.
In the U.S., Visa, MasterCard and Discover have all created incentives for merchants to support acceptance of EMV chip technology by encouraging retailers to have the capability to process any EMV transaction, including both contact and contactless payments. And an October 1, 2015 deadline looms as the payment industry prepares for a liability shift for U.S. and cross-border counterfeit card-present POS transactions. This shift in liability will move the responsibility to payment processors, and possibly merchants, who do not support EMV for any counterfeit card transactions.
In addition to forcing a liability shift onto merchants as a means to convince them to embrace EMV, card brands, like Visa and MasterCard are taking steps to speed up widespread EMV adoption. Over the past two years, all of the major U.S. payment networks have issued road maps that provide milestones for merchants and processors to adopt EMV.
For example, in February, Visa announced that its roadmap for EMV chip card adoption will now include a migration path for ATM transactions. Visa plans to provide some of its proprietary EMV chip technology to the industry in hopes of simplifying EMV chip implementation for debit. And in January 2012, MasterCard unveiled its own EMV guidelines on how retailers can move beyond plastic.
Costly Road Blocks To EMV Compliance
Today’s roadmaps to EMV adoption continue to be littered with road blocks that could prevent retailers from meeting the October 2015 deadline. Chief among these concerns is that embracing EMV requires retailers to significantly upgrade their payment systems and possibly upgrade or replace card readers at every point-of-sale (POS) terminal in order to accommodate EMV’s sophisticated security measures.
Just ask David Hogan, Executive Director at Heartland Payment Systems and former CIO for the National Retail Federation (NRF). “One of the most costly things that any retailer can do is upgrade their point-of-sale system,” said Hogan. “It’s time consuming, there are both hardware and software changes to take into account and then there’s the training of store associates to consider.”
Another obstacle facing retailers: the sheer lack of availability of EMV cards in the U.S. According to EMVCo., approximately 1.5 billion EMV cards have been issued globally — 44.7% of the total payment cards in circulation. These figures, however, purposely exclude the United States where circulation is still in its infancy. As a result, said Hogan, “Merchants are saying, ‘Wait a minute… You want me to spend millions of dollars to upgrade my POS to accept both contact and contactless EMV transactions now, but very few cards are even in the public domain yet?’”
Retailers also are questioning the impact EMV migration will have on their ability to accept debit card payments. According to Dan Heimann, manager of solutions consulting at ACI Worldwide, the debit payment industry not only includes major credit card issuers but nearly 20 independent, debit networks, many of which “have yet to declare a direction on how they plan to support EMV in the United States.” Whereas major players like Visa, MasterCard, Discover and American Express have all issued specifications on how they plan to accelerate chip migration, domestic debit networks have left many retailers in the dark.
“We see retailers able to deploy terminals to support chip cards,” said Heimann. “Where retailers can’t really make a decision today is what kind of programming they need to put into their POS terminals and in-store devices to support debit cards in the U.S. So while they can move forward to a degree with credit, the picture is still very uncertain with debit cards.”
And then there’s the threat of obsolescence. The U.S. payment industry has been dragging its heels for years now on EMV adoption. Given how quickly today’s hottest high-tech gadget can become yesterday’s passé device, many merchants are split between embracing EMV and keeping an eye out for the next big thing in payment processing.
For example, Near Field Communication (NFC)-enabled mobile devices for contactless payments and other mobile applications are a key consideration among retailers who want their POS devices to be able to support EMV as well as NFC.
“EMV is a good step forward but ultimately it’s not where we need to be,” said Joseph Finizio, CEO of the Retail Solutions Providers Association (RSPA). “The next step could potentially be NFC. However, it’s too early to tell what role NFC will play. It was a real big hit to implementation plans for NFC and mobile payments when NFC wasn’t included with the release of Apple’s iPhone 5.”
However, there is one thing today’s payment and retail industry experts can agree upon: “Something needs to be done,” said Hogan. “The existing magnetic stripe credit card is a flawed product. It’s served us well for over a generation but it not the most secure form factor. The payment ecosystem needs to evolve.”