As coronavirus keeps millions at home, do gas pumps still need EMV this year?
The coronavirus pandemic has added a troubling twist to the already difficult process of converting fuel pumps to accept EMV chip cards and communicate with the stations' point-of-sale terminals.
Merchant organizations representing gas station operators, whether large chains or single-site businesses, have asked the major U.S. card brands to again consider extending the liability shift date of Oct. 1 for having U.S. fuel pumps ready for EMV. The damage in lost business and potential safety costs because of coronavirus have added a new measure of despair for operators staring at heavy EMV conversion costs.
When other merchant categories had to convert in 2015, gas stations were given a 2017 deadline due to the difficulty of replacing entire pumps to add EMV security. As that later deadline approached, the card brands extended it again to October 2020.
Visa stated in early April that it would monitor the situation but had no plans at this time to change the EMV timeline once again.
Because of how rapidly the economy has contracted under the impact of coronavirus, merchants are asking Visa and the other card brands to again reconsider their timeline.
The coronavirus pandemic has made it more difficult to get technicians and testers on site to get the pumps ready, or to even get needed hardware because of supply chain disruptions. In addition, the current crisis calls for gas stations to focus more intensely on safety measures at the pumps and at in-store terminals, and to have fewer interactions and touchpoints for customers purchasing gasoline.
"The environment continues to erode, and we sent a letter to the card brands saying this isn't getting any better, and it is getting worse," said John Drechny, CEO of the Merchant Advisory Group. "We think now is the time to take some action."
The Merchant Advisory Group, National Association of Convenience Stores, NATSO (representing America's travel plazas and truck stops), the Petroleum Marketers of American and the Society of Independent Gasoline Marketers of America sent a joint followup letter to Visa and other brands on April 8 following Visa's April 6 statement.
Merchants pointed out that the virus had already caused a "substantial level of dislocation" that would continue and prevent retailers from making the October deadline.
The push to meet an EMV deadline in five months "is causing additional stress for these businesses at the same time they are worried about economic survival and the well-being of their employees and customers," the merchants said.
The merchants ended their letter urging the card brands to lift the current deadline and "wait to set a new date once this crisis has passed."
In a response this week to PaymentsSource, similar to the one it sent to merchant groups earlier in the month, Visa said it "recognizes the COVID-19 pandemic has caused unprecedented impact on the global economy and acknowledges the importance of fuel retailers in enabling daily transportation and commerce. With the date for the EMV migration for automated fuel dispensers (AFDs) still six months away, Visa will continue to closely monitor the situation through on-going assessments and conversations with partners to comprehensively gauge the ability of the ecosystem to support fuel retailers with their upgrade."
Visa expressed its concern that fraudsters would take advantage of any further delay to steal payment card credentials. Indeed, issuers are already seeing a rise in chargeback disputes due to friendly fraud and inflexible refund policies; and merchants are grappling with fraudsters who are trying to exploit the shift to online shopping from quarantined consumers.
"The liability shift date remains the same as Visa works with partners and retailers to upgrade to EMV to help eliminate the opportunity for criminals to use counterfeit payment cards at unattended AFDs to perpetrate fraud," Visa said in its statement.
As of this week, Visa had been the only card brand to respond to the merchant groups' first letter. As with the initial EMV liability shift deadline for general retail, the other card brands tended to align their timelines with Visa's. Visa has not yet responded to the April 8 followup letter.
Mastercard provided a statement to PaymentsSource that echoed Visa's statement.
"EMV technology has proven very effective in reducing fraud. Here in the U.S., we’ve seen those rates drop by 88% since merchants started upgrading their terminals," Mastercard said.
"All of this comes alongside other technologies and protections like contactless, loyalty programs, address verification at the POS and other advanced security features … At this time, we have not made any final decisions and we will continue to closely monitor the environment," Mastercard added.
The general retail landscape has slowly converted to EMV since its 2015 liability shift, with estimates at about 63% of transactions now being through chip cards.
Counterfeit fraud, the type that EMV prevents, has grown dramatically at the pumps in recent years, according to new research from Aite Group, which cites the problem growing to an estimated $451 million this year.
"I believe the card brands want to do the right thing, and that maybe would be a contactless solution at the pumps," Drechny speculated. "Some pumps have enabled that, and it is a pretty smooth process, as the chip gives a dynamic indicator and it takes the zip code verification pad out of the equation, and the customer doesn't have to touch or insert anything."
Putting an EMV chip card in the fuel pump transaction slot will create a longer, more hands-on process for paying at the pump, Drechny noted. Gas station operators are currently thinking about protective shields at the in-store POS at stations, as well as gloves and towels at the pumps.
To add EMV conversion worries and costs to those tasks is asking a lot from fuel operators, many of whom are just small business owners.
"Most of this industry is small business, or single operators," said Doug Kantor, counsel for the National Association of Convenience Stores. "They are getting crushed by the stay-at-home orders. If any of these gas station operators are in any shape to even be in business in October, they won't be in a position to absorb more fraud … they will be lucky just to be in business at that point."
Aite Group research on EMV conversion in petroleum retail cites 152,000 convenience stores operating in the U.S., with 81% of those selling fuel. Of the country's total convenience store ownership, 58% are one-store operations. By comparison, big chains with more than 500 stores in operation make up only 8% of overall ownership.
Stores that sell fuel illustrate the complexity of converting a fuel pump to EMV, as they also have an in-store system that operates separately from the payments at the fuel pump. Because customers can generally pay either at the pump or in-store, a connection has to be made between the two. Aite cites a Connexus study in which 86% of owners surveyed had implemented in-store EMV, but only 13% of those had made the full connection to EMV-converted pumps. As many as 42%, however, had expressed plans to convert by the October deadline — but this was before the coronavirus pandemic.
Aite estimates that the average gas station has six fuel dispensers, able to serve customers on both sides. That would make a typical EMV conversion requiring replacing or retrofitting 12 POS terminals at a cost between $5,000 and $8,000 per dispenser.
If a station operates with older dispensers that cannot be retrofitted, replacement costs could range between $15,000 and $18,000, the report said. Owners may also find that each card reader trying to connect to the payment server could run into bandwidth problems, with each dispenser trying to "carry the rich data sets required for EMV transactions," the report added.
The complexity of the EMV conversion was staring down gas station owners well before the coronavirus hit, but the current economics piled on top of the daunting project are making things far murkier.
The fuel operators also know they won't be able to just wait out the coronavirus stay-at-home orders like some other businesses might. Unlike auto or clothes sales in which consumers may "catch up" and make purchases later, buying gasoline is a straight-forward process.
"You can't just overflow your gas tanks and buy more in the future because you weren't driving and using gasoline now," Kantor said. "The price of gas now isn't a relevant factor because the problem is, nobody is driving now. It wouldn't matter what you charge for gas."
However, it's not like all of the fuel companies are sitting on their hands waiting for a new timeline. Royal Dutch Shell, which has often served as an example as an early adopter of payments technology, began its EMV migration earlier this year at 1,000 of its U.S. stations.
In addition, for the past several years, various technology developers have focused on payments at fuel pumps, mostly trying to speed up the process from a convenience standpoint in developing mobile apps that interact with the pump and POS terminals.
That type of technology could pick up speed now that contactless payments at a fuel pump make more sense as a safety measure.
"When the whole ecosystem talks about it (EMV timing), everybody understands the fact that it is going to need to be delayed," MAG's Drechny said. "The only thing everyone is grappling with is what that will look like. And we would like to get to that discussion."