Status Check: EMV's Impact On Retail
By Andrey Tikhonov, Senior Director, Payment Technology, Infinite Peripherals, Inc.
Several months after the EMV liability shift took effect in the U.S., the scenario at retail shows some stores fully compliant, some partially and some not at all. As this transition is expected to be multi-year, progress continues gradually.
Implemented to increase card security and reduce the multi-billion-dollar credit card fraud in the United States, EMV shifts the liability for counterfeit transactions to the least EMV-compliant party; so, if an EMV card is presented but the merchant cannot process it, the merchant is responsible for the cost of the fraud.
To date, about 37 percent of U.S. merchant locations are EMV-ready, according to a recent survey by The Strawhecker Group (TSG) of 92 payment-service providers, representing more than 3.9 million merchants, or about 50 percent of the U.S. card-accepting market. Another report from Boston Retail Partners (BRP) indicates that only 22 percent of retailers currently support EMV.
Today’s Retail Landscape
The relatively low compliance with EMV at U.S. retailers can be attributed to:
- Deadline timing – A deadline of October 1, 2015 was disruptive for retailers, who didn’t want to take on a massive change and potential problems with new systems and longer check-out processes during their busiest quarter, which includes the holiday season. Some merchants simply opted to delay.
- Cost – New card readers can cost several hundred to one thousand dollars each, and the entire transition is expensive, requiring new software, integration with existing systems, testing, certification and training.
- Processor/Gateway readiness – TSG found that some payment processors are struggling to keep up with the overwhelming demand for integration, testing and certifications. Likewise, gateway migration is complex and slow.
- Certifications – EMV Level 3 certification tests each unique EMV path to the network – the hardware + software + processor combination. POS developers must certify each terminal to each credit card brand, which individually have different tests for each transaction path. So the certification process is time-consuming and backlogged.
- Not applicable – Some SMBs are not convinced that EMV is a worthwhile investment, based on their average transaction amount, revenues or incidence of card fraud, and have adopted a “wait-and-see” approach.
Of those who have fully enabled chip readers across their entire network are many big box chains, including Best Buy, Home Depot, Lowe’s, Old Navy, Walmart, Sam’s Club, Target and Macy’s, among others. Bed Bath & Beyond, Costco, PetSmart, Marshalls, Toys R Us and more are still becoming EMV-compliant, and cannot yet accept chip cards at some or all of their stores.
Checkout Confusion and Chargebacks
The EMV Migration Forum estimates that about 70 percent of U.S. cardholders now have at least one EMV card, but that doesn’t always make checking out easier. Retail associates and customers report ongoing confusion as to swipe or dip, and frustration with longer transaction times for EMV.
Furthermore, most EMV transactions in the U.S. require a signature Cardholder Verification Method (CVM), which differs for those used to entering a PIN with a debit card. Understandably, customers may be unsure of what to do at the register. An Electronic Transactions Association survey showed that 13 percent of Americans prefer to use the familiar magnetic stripe process, even if it is less secure.
And some retailers are feeling more EMV pain, as they are hit with increasing chargebacks because card issuers are returning fraudulent transactions that were not processed via EMV, even if it isn’t entirely clear that counterfeiting caused the issue.
Future POS Outlook
According to the National Retail Federation, it can take the average retail store approximately 19 months to implement a new chip card payment system. TSG predicts that EMV readiness will increase to 50 percent of retailers by June 2016, 72 percent by December 2016 and 90 percent in 2017. A report by Javelin Strategy & Security, however, estimates that universal acceptance of chip technology at retail may take until 2019.
Some experts predict that contactless payments such as Apple Pay® will increase, because they are faster than contact chip EMV, and most of the newly deployed EMV terminals have Near Field Communications (NFC) capabilities. For this to happen, however, retailers must have software enabled to accept contactless payments, which is an extra responsibility that may take additional time. Canada and the U.K. have experienced jumps in contactless transactions after their EMV transitions.
Discussion also has surfaced regarding further enhancing chip card security by requiring a PIN CVM, instead of a signature. This may happen over the next three to six years, as EMV becomes more standard at retail, and as card issuers enter the next card issuance cycle.
For online retailers, the EMV shift is expected to increase card-not-present fraud, which can be measured over the next several years. This will require additional security measures, such as P2PE systems, tokenization and dual factor authentication, to limit counterfeit e-commerce transactions.
Andrey Tikhonov is the Senior Director of Payment Technology at Infinite Peripherals, Inc., and also is a certified TG-3 Auditor. Infinite Peripherals was the first company to enable Apple® products with mobile POS devices and now has more than 1 million solutions on the market and products in 30% of the top 20 U.S. retailers.