EMV’s Slow Crawl Into Retail

Last year, starting in about August, the big EMV countdown was underway — though the question as to whether they were going to “make it” was already answered. They weren’t. As of the liability shift on Oct. 1, around half of “big retailers” had EMV while smaller retailers were clocking in at 10 percent to 33 percent, depending on whose count one liked.

However, the environmental attitude and its prospects remained positive. Retailers were adopting EMV – and though the liability shift deadline came and went with far less than a majority signed in to using EMV, the widely accepted conventional wisdom was that it would continue to pick up speed in much the way it initially had in the various global markets where it was introduced.

Five months down the line, the progress does not seem to be much greater, according to a recent study by TSG.

According to the report, only 37 percent of U.S. retailers are able to process chip-card transactions.

The challenges to adoption, in fairness to those retailers, have been formidable. Various terminal manufacturers in the U.S. simply weren’t ready with the hardware by the liability shift. Square, for example, agreed to cover any and all fraud costs for their customers during the time period between the liability shift and the arrival of the EMV-capable device.

Cost has also been a factor as even large merchants have struggled with the cost of EMV, which smaller merchants have decided en masse that the financial risks they face from card cloning fraud (the specific type of card fraud EMV tech makes difficult) are much less concrete and risky than the costs associated with upgraded their equipment and retraining their staff.

The good news – such as there is some in the report – is that it does indicate that EMV is growing. According to a survey by the same research group — taken shortly before the liability shift went into effect in the fall — only 27 percent were going to be ready to go with chip card processing as of Oct. 1. That means that EMV is on the rise, having jumped 10 percent in a little under half a year.

However, before one gets overly excited by that reveal, it does seem worth noting that the projected baseline was 40 percent EMV acceptance, meaning it has fallen behind expectations.

And that is far from EMV’s only big problem five months after the liability shift. Genuine concern remains that the U.S.’s choice to adopt the chip and sign paradigm, as opposed to the more popular globally and more secure chip and PIN version of EMV. The wide expectation is that EMV transactions in the U.S. will evolve toward chip and PIN; debit transactions already require PIN clearance. The conventional wisdom is that that chip and sign is something of a transitional step meant as a concession to make it easier to bring both customers and retailers into the EMV fold. In the longer term, the wide expectation is that merchants will transition to chip and PIN, as it is the more secure method.

However, that expectation is at least somewhat clouded by the simple fact that as of yet, 63 percent of American merchants are showing absolutely no interest in even the compromise method.

“I suspect that many merchants that have delayed, especially merchants in higher risk categories, felt the impact of the liability shift last year and we’ll see them aggressively ramp up plans to migrate,” noted Jared Drieling, a business manager at TSG that did the survey.

Drieling further noted that the holiday season may not have been the best follow-up act to the liability shift since it pushed many merchants to wait “until the holiday season ended to prevent friction and confusion at the checkout line.”

TSG estimates that 50 percent of merchants will have EMV-equipped terminals by June 2016. Getting all the way to 90 percent is likely not in the cards until 2017 at the earliest, the firm said.

And, if the comments in response to the survey are any indication, the road will be littered with complaints.

“This has been a major pain in the a$$. Terminal manufacturers weren’t ready, the processors and certification people weren’t ready; we spend more of our own $$ to clean up their mess,” one payment service provider said.