There’s no way to gift-wrap the EMV woes for issuers and retailers around the upcoming holiday sales season.
Fewer than half of all U.S. merchant locations have embraced chip cards, and in a few months as crowds of shoppers descend on stores beginning on Black Friday, the partially complete EMV landscape could magnify retailers’ risks.
The chaotic holiday sales period is prime time for thieves, and payments experts say criminals are likely to pounce on opportunities to rip off retailers who still haven’t yet upgraded terminals to accept more secure chip cards following the Oct. 1, 2015 liability shift for counterfeit card fraud.
“From what we saw in other markets around the world, there’s a concerted effort by fraudsters to pull as much fraud from the payments system as possible before things fully migrate to EMV,” said Troy Bernard, director, strategic marketing and products at card manufacturer CPI Card Group.
Issuers have converted about 65% of all credit cards and more than 30% of debit cards to EMV, according to CPI’s latest research. In 2017 things will look much different, with most credit and debit cards sporting more-secure EMV chips, greatly reducing opportunities for counterfeit card fraud at the point of sale, according to Bernard.
“Sophisticated merchants and issuers realize the upcoming holiday season likely will be the last hurrah for card-counterfeiters, and they should take that into consideration as we approach the busiest shopping period of the year,” Bernard said.
But merchants who rush to finish their EMV upgrades right before the holidays may run into another problem: Customers and store clerks fumbling with a new checkout process could cause bottlenecks during peak sales periods, possibly hurting sales and profits.
To assess retailers’ risk around EMV this holiday season, New York-based investment analysis firm Morgan Stanley recently conducted a survey of 35 larger merchants and specialty retailers about their chip-card upgrade status and concerns, and found a mixed bag.
Overall, Morgan Stanley said the chip-card transition will be of “minor significance” to the majority of retailers during the holidays, but there are some areas of concern, particularly for smaller merchants.
In contrast to Mastercard’s latest data suggesting only 30% of all U.S. merchants have completed the chip-card migration, Morgan Stanley said 57% of larger, national chains it analyzes have finished their EMV upgrades.
Nearly a quarter of those surveyed, or 26%, said they plan to complete their EMV upgrades before the end of the year. The remaining 27% likely won’t finish their chip-card upgrades this year, Morgan Stanley’s research suggests.
Restaurants and grocery stores without EMV-processing capability have the greatest exposure to heightened counterfeit fraud risk during the holidays, Morgan Stanley said.
Genesco Inc., a Nashville, Tenn.-based retail holding company with 2,850 apparel and accessories stores, said its Journeys footwear chain won’t be fully EMV-compliant before the holidays, and because of that the company expects to absorb “some fraud,” according to the Morgan Stanley report.
Ralph Lauren Corp. also has not finished its EMV upgrade, and the company expects it may see an “incremental” increase in fraud during the holiday sales period, the report said.
Major department stores and specialty retailers including Macy’s and The Gap have completed the EMV shift at stores, but some worry about possible sales-slowdowns during the holidays when long lines could put pressure on the relatively untested chip-card process, Morgan Stanley's survey suggests.
Stores Morgan Stanley surveyed said they plan to emphasize training for store associates to “better understand” EMV checkout systems to offset trouble.
Costco told Morgan Stanley researchers it isn’t embracing EMV. “Notably, Costco does not plan to implement EMV because it is too slow,” Morgan Stanley said in its report, adding that Costco will roll out NFC-based contactless payments next year. Costco did not respond to a request for comment.
Many quick-service restaurants feel less pressure to upgrade to EMV, after Visa and American Express recently introduced a policy postponing merchants’ liability for counterfeit card fraud on lower-ticket transactions. Merchants won’t be liable for Visa or Amex transactions under $25 from now through April 2017, which “essentially extends the deadline to comply with the new EMV standard,” Morgan Stanley said.
McDonald’s plans to complete its nationwide EMV upgrade next year, but Wendy’s has not determined when its chip-card conversion will be finished, Morgan Stanley said.