The merchants chosen to speak at Nacha's Payments 2013 conference didn't waste lot of time before swinging away at the expectation that they start accepting EMV-chip cards in the near future.
EMV cards, which are common in other countries, improve security over magnetic-stripe cards but are not compatible with many of the payment terminals installed in U.S. stores today. Though the U.S. has long resisted migrating to the EMV standard, the card networks established a timeframe to urge most merchants to upgrade their hardware by October, 2015.
If merchants agree to switch, the card networks will lower certain requirements to validate their compliance with the Payment Card Industry data security standard. If merchants do not switch, they take on more liability for fraud.
"The [card associations] chose to take the low road and do as little as possible," said George Odencrantz, vice president of IT for Sinclair Oil Corp., an inference EMV is about two decades old and doesn't affect all types of fraud. "If [EMV] addressed online transactions and [totally removed] PCI compliance burdens, that may be different," he said.
The expense of migration is also a major concern for retailers. It will cost about $40 million to upgrade Sinclair's gas purchasing systems to accommodate EMV cards. Since the company uses address verification as a security measure, EMV cards don't add to the security for the gas stations, Odencrantz said. "We don't think EMV will provide significant protection," he said.
Odencrantz was one of several merchants who spoke critically of the EMV migration in an energetic session at the Nacha event.
Gavin Waugh, vice president and assistant treasurer for Wendy's, also voiced concerns about whether EMV-chip cards provide enough fraud protection to be worth the cost of accepting them.
Wendy's absorbs chargebacks for swiped card purchases under $25. These payments are a vast majority of Wendy's business, Waugh said, and the fraud rate is still very low. "The fraud rate we 'eat' today is about one basis point, so small it's not worth measuring. It's tough to figure out how much the issuers are 'eating,' but we don't think it moves the needle that much."
As merchants upgrade their terminals to accept EMV cards, "the fast food restaurants will get there, but they won't be on the leading edge," Waugh said.
The first of a number of card network-imposed rolling deadlines for EMV migration has passed, and the card networks are reporting progress among issuers, while merchants are hitting the conference circuit to make sure their concerns are heard.
"One thing to understand is EMV is not being mandated," said Rue Jenkins, assistant vice president in the treasury department at Costco. Costco is already absorbing chargeback fraud, and there's not adequate information on how costly the fraud liability shift will be compared to the cost of EMV migration, Jenkins said.
The deadline for most merchants is also too soon, merchants say. The migration to EMV cards in Canada took as much as ten years, while the U.S. timeframe is about three years.
"When we did [the] EMV rollout at our warehouses in Canada, it was painful, but not as painful as it will be in the U.S.," Jenkins said. "We are concerned that the standards will only solve card-present fraud. We sell a lot of items on Costco.com, including $200,000 diamonds that were purchased with a credit card."
Whatever path merchants take, they can't eliminate fraud altogether, and many predict it will move to card-not-present channels.
Citing the Canadian Bankers Association, Claudia Swendseid, senior vice president at the Federal Reserve Bank of Minneapolis, said the migration to EMV in that country led to a notable decline in card-present fraud.
At the same time, card-not-present fraud spiked. Swendseid did not directly attribute the increase to EMV—but it's something to keep in mind, she said.
"We need to think about how we are going to protect the card-not-present environment," Swendseid said. "There is tech available to do this. It's not without costs, but it does need to be part of the strategy."