There was plenty of confusion to go around in October 2015, with only a small percentage of retailers ready to roll when the deadline passed for them to become EMV-compliant by installing new EMV-capable credit card readers and acquiring certifications from various payment networks.
Now that over a year, and two holiday seasons, have passed by, the question is: Where does retail stand with EMV? The answer, says experts, is that it’s been a rocky road, but there have been improvements in adoption and an ongoing evolution in implementation.
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The good news is, consumers are starting to adapt to the new normal — their first instinct now is to insert a chip, not swipe. In addition, Visa and Mastercard implemented new quick-chip technology last summer, to make the processing time faster for consumers.
“One of the biggest complaints off the bat was that EMV was too slow, taking 10-15 seconds,” says Perry Kramer, vice president and practice lead at Boston Retail Partners. “Now the EMV transactions have really gone back to the same speed as what it used to be with swipe transaction — from the consumer point of view, it has sped up dramatically.”
Retailers, on the other hand, have struggled to get up to speed with EMV and have dealt with a variety of challenges, particularly due to vendor delays and the liability shift that has left them on the hook for chargebacks. “Those that weren’t ready really got thrown into panic mode,” Kramer says. “The amount of chargebacks, in terms of dollars and quantity, far exceeded anyone’s expectations.”
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Obstacles along the way to EMV
According to an National Retail Federation (NRF) survey conducted last year, 9 percent of merchants had implemented EMV during 2015 and 39 percent had done so by June 30, 2016. By the end of 2016 86 percent were expected to have implemented EMV and 99 percent expect to have done so by the end of 2017.
Why the slow rollout? The biggest obstacle to EMV implementation was the card industry’s delays in certifying the EMV equipment retailers installed, says Craig Shearman, vice president of government affairs public relations at the NRF. “The equipment’s chip functions can’t be turned on until it has been certified, but the card industry failed to provide sufficient personnel or other resources to get that done in a timely fashion,” he explains, which left millions of EMV chip readers sitting next to cash registers that could still only be used to swipe cards.
In addition, there have been hiccups related to debit card usage with EMV: Kroger filed a lawsuit against Visa regarding debit transactions — the grocery chain wanted to require PIN-based verification on debit chip cards, which did not comply with Visa regulations — while Walmart and Home Depot filed similar suits.
At this point, however, most major retailers have been certified. In addition, most smaller retailers found it fairly simple to become EMV-compliant because of bank-supplied POS equipment. But midsize retailers — between $500 million to $3 billion in sales — typically have POS systems that are over a decade old and require customization to implement EMV, says Kramer: “That led to delays — some are still not compliant and are paying the price.”
Certainly, there have been fewer chargebacks thanks to EMV, which experts agree is a good thing, though they maintain that the chip and signature technology is still prone to fraud — which could be reduced further with the chip and PIN technology used elsewhere. And, Shearman points out that banks have not invested the money they had previously “eaten” in chargeback costs in the retail community. But, on the flip side, online fraud has, as expected, risen significantly since EMV was implemented: “The fraudsters have moved over to the online market,” he says.
What’s coming down the pike with EMV
Contactless EMV was supposed to go live last spring, but the processing rules for banks are not finalized yet. By October 2017, fuel pumps were also supposed to be EMV compliant — but due to a lack of hardware, this date has been pushed out to 2020.
Some vendors are working to capitalize on these EMV obstacles by focusing on software that manages risk liability and fraud instead of EMV. Feedzai, for example, points out that for gas stations, the cost of upgrading equipment could be incredibly costly. “Instead of upgrading, many have begun to manage their risk on the backend, on the software level, as opposed to the hardware level with a chip — at a fraction of the cost,” says Nuno Sebastiao, CEO and co-founder of Feedzai.
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In addition, he says, as adoption alternative methods of payment through mobile wallets continue to grow, EMV will become less necessary for some retailers. “This is really on a per-vertical basis, such as with gas stations,” he says. “But some retailers won’t want yet another point solution to manage fraud.”
The NRF’s Shearman disagrees, however, saying that mobile wallets are a fraction of a fraction of the payments market and are not a factor in EMV adoption. “Our State of Retail Payments survey last year found that EMV was the top payments challenge for 76 percent of retailers compared with 17 percent for acceptance of emerging payments types,” he says.
“EMV was largely the standard among major retailers during the 2016 holiday season and that should increasingly be the case among small retailers by holiday 2017,” he adds. “But retailers will continue to push to have chip and signature replaced with chip and PIN.”