U.S. gas stations can wait until October 2017 to begin accepting EMV-chip cards or face the consequence of an increase in fraud liability, but there's already concern that the work at gas pumps could stall.
The 2017 deadline, which is two years later than the one faced by all other U.S. companies, was chosen due to the complexity of upgrading payment hardware at the pump. But even given the extra time, gas station owners have been slow to begin their shift to EMV, concerned about facing costs of as much as $10,000 per pump, according to some estimates.
And the scope is considerable. While the number of fueling sites in the U.S. is declining, there are still more than 150,000 locations nationwide, of which 127,588 are convenience stores, according to the National Association for Convenience and Fuel Retailing. Some gas station brands have even said they won't upgrade to EMV, preferring to rely on their own anti-fraud measures.
More than 58% of the convenience stores that sell fuel in the U.S. are single-store businesses, the NACS reported in its 2015 Retail Fuels Report. The major fuel brands have been steadily selling off their locations to independent entrepreneurs, thus increasing the number of gas stations operated as small businesses a category of merchant that has been somewhat oblivious to the ongoing shift to EMV-chip cards.
"There is no good communication to explain to them what's going on," said Randy Vanderhoof, executive director of the Smart Card Alliance and director of the EMV Migration Forum. "Most merchants never talk to their payment processor unless they are having a problem."
But even given the extra time to budget for the change or consider the alternatives, gas stations may not have the luxury of waiting any longer than they already have.
"Not only do changes have to be made at the pump and at the consumer stores inside, but also the back end networks are going to need major renovations and updates to accept all of the payment products that are out there today," Vanderhoof said. "Payment companies should be working their migration strategy for gas stations now."
WEX, which issues fleet cards that are accepted at more than 90% of the U.S.' retail fuel locations, is not waiting for gas stations to upgrade their pumps before replacing its own cards with ones that provide EMV-chip security, CEO Melissa Smith said.
Instead, WEX is working with gas station owners to update their hardware, Smith said.
"The migration is a positive thing for us because we're able to work with the gas station owners to place our specifications in the actual pumps," Smith said. "We're seeing more traction around EMV concerns over the past quarter, so merchants are clearly putting that in their sights."
The South Portland, Maine-based company reported earnings on Feb. 9. Its revenue in the fourth quarter was $212 million, up 16% from revenue of $182.3 million a year earlier. For the full year, WEX's revenue increased 14%, to $818 million, from $718 million in 2013. Smith said lower gas prices and foreign exchange weaknesses have not hurt the company's economic outlook.
The EMV Migration Forum recently formed a working group to discuss the challenges facing the petroleum industry in the U.S. as it migrates away from magnetic stripe cards toward EMV chip cards.
The migration is complicated by the number of different cards that gas stations much accommodate, Vanderhoof said.
"Not only do they have credit and debit cards and other charge cards, they also have fleet cards," Vanderhoof said. "It's going to take some time for these card products to get updated to support chips, and for that reason the two extra years are necessary."
Gas stations are also inconsistent about how they accept payments, complicating the migration, said Zil Bareisis, a senior analyst at Celent.
"If you fill up and then pay inside the station to an attendant, there is no real difference between gas stations and other retailers. This is still quite common in the U.K.I insert my card and enter my PIN as [one would at a regular POS terminal]," said Bareisis, who is based in London.
However, many U.S. issuers are not requiring the use of a PIN with EMV-chip cards. But the gas pump is an unattended terminal, and so many gas stations that accept payments at the pump might require the use of a PIN to justify the investment they made in the new hardware, Bareisis said. About 40 million Americans buy gas each day, and about 30 million pay at the pump, according to the NACS.
"A chip and PIN card with an offline PIN is much more suitable for unattended terminals, such as gas stations," he said.