Thirty-four percent of merchants interviewed late last year for an Aite Group research report on EMV readiness had never heard of the U.S. migration to EMV-chip payment cards, despite the fast-approaching October 2015 deadline set by the card networks.
Furthermore, of the more than 400 merchants surveyed, 46% said they had not yet begun any preparations for EMV acceptance. A company that misses the October deadline faces a shift in fraud liability (gas stations have until October 2017).
There is a general understanding throughout the U.S. payment industry that smaller merchants are going to be the last to convert to implement the point of sale technology needed to accept EMV cards, but something is amiss if three years after the card brands announced the U.S. initiative merchants don't even know what EMV is.
This revelation "is just stunning," said report author Thad Peterson, senior analyst with Boston-based Aite Group. "I have talked to friends who operate different types of retail operations and it [EMV] is not something they are paying attention to."
In some instances, resellers, independent sales organizations and managed service providers have deliberately withheld information about chip technology, the report said. These providers may have also simply underplayed the importance of chip technology to their clients, the report added.
This is especially troubling if the card brands are counting on acquirers and ISOs to deliver the education message in the final months before the liability shift.
Aite Group surveyed 415 managers of retail firms of various sizes, based on revenue, in September and October of 2014. The research also included 25 interviews with large retailers, merchant acquirers, processors, payment providers and terminal manufacturers.
Aite concludes that about 59% of merchants, mostly the larger retailers, will have EMV chip-enabled terminals in place by the October 2015 deadline.
Because most major retailers will be ready, consumers will be more aware of EMV technology and how to make a chip-and-PIN or chip-and-signature payment, Peterson said.
Plus, previous Aite studies have predicted that 80% of payment cards issued by October 2015 will have EMV chips.
The migration to EMV-chip cards provides security against counterfeit fraud at the point of sale. Ordinary magnetic-stripe cards are so easy to clone that their data can be rewritten to other cards or even hotel keys and then used at card terminals and ATMs, for example.
Because nearly half of the merchants said they were not yet preparing for EMV, most will be working on their conversion well past the October 2015 liability shift. The EMV certification process generally takes about 12 to 16 weeks per certification, per network, Peterson said.
"That's what is creating the roadblock in the middle market, because that is a lot of time," he added. "Some on the acquiring side said there simply are not enough days left to get this done."
In other countries, the EMV migration also took longer than intended, but the liability shift has to serve as a catalyst in the U.S., Peterson said.
Ultimately, some small merchants who are not prepared for EMV will suffer a significant fraud incident after the liability shift date, Peterson said. When that happens, many small businesses will move quickly to avoid being struck by a fraud incident that could put them out of business.