Consumers who have been issued EMV chip cards know how to use them. So it might come as a surprise when merchants equipped with chip card readers instruct their customers to swipe their cards instead.
In advance of last fall's Oct. 1 deadline for merchants to start accepting EMV chip card payments – or else be held liable for fraud losses – plenty of retailers swapped out their old mag stripe terminals for new ones that could read chip cards. Yet even though the deadline has passed, quite a few merchants equipped with the new terminals are still having customers swipe their cards.
One reason is that the terminals, by themselves, simply aren't enough.
"At this point, it is extremely common for a merchant to have an EMV device without the capability of accepting EMV chip cards," says J.D. Oder, chief technology officer and senior vice president for research and development at Shift4, a credit card processing gateway out of Las Vegas that has been assisting software vendors with the EMV certification process.
Mansour Karimzadeh, managing director and chief technology officer for the SCIL-EMV Academy, an EMV education firm in Toluca Lake, Calif., estimates that about 30% to 45% of merchants have the new terminals but are not using them for one reason or another.
A lack of software is the leading problem.
"To be able to use EMV, they have to put that software in and then do a number of certification tests to make sure the terminal works correctly and to make sure the processor can actually see transactions coming in," Karimzadeh says.
Lack of will appears to be another reason.
Steve Eazell, president emeritus and board member of the Western States Acquirers Association, says that when the checkout line is backed up with customers, it can be tempting for the merchant to disable the terminal's EMV capability and allow customers to swipe their cards just to get people in and out of the store. And because consumers still aren't used to the new cards and not all merchants have fully trained their employees on EMV, the process can take even longer.
"Unless an owner is there 24/7, the employees are going to do what's most convenient," Eazell says. "If there are too many people in line, or the customer says it's taking too long, they're just going to opt for the path of least resistance."
Some merchants also decided to streamline the rollout by continuing to magstripe cards during the holiday season and then slowly ease into chip-card acceptance, Karimzadeh says.
Jeff Marcous, CEO of Dharma Merchant Services in San Francisco, says that as a consumer, he's witnessed the trend of merchants who have new equipment but are still relying on the swipe. "I'm often faced with going to a merchant's location, and a lot of times they've taped over the slot," he says.
Dharma started deploying terminals as soon as they became available, and that by and large his merchants have been using the equipment when a chip card is present, Marcous says. But that's not to say the industry as a whole was prepared for the Oct. 1 rollout.
"Acquirers weren't ready. Merchants weren't ready. Consumers weren't ready," he says. "All in all, we just can't believe the level of incompetence of this industry to accommodate such a large program as EMV."
A leading complaint among merchants about the new equipment has been the difficulty of accepting tips, Marcous says. The issue is that tip needs to be added while the card is in the terminal, but at most restaurants and bars, the customer isn't at the point of sale to add the tip because the server has taken the card away.
"There are always unforeseen glitches that arise whenever there's a mass adoption of new technology like this," Marcous says.
Payments consultant Linda Perry says it's taken a lot longer to activate terminals than expected because the entire conversion process – and the logistics involved – ended up being much more difficult than the card companies expected it would be.
"If you've never been a bank or processor, you have no idea about how hard it is," she says. "And you have to get it right, because the merchant's got to wake up the next morning and have it work."
Perry, who previously worked for Visa Inc. as senior vice president and head of acquirer and processor sales, suspects that Visa and MasterCard are a step or two removed from the point of sale process and the activity at the ISO and acquirer level. Nor did they fully understand how big a task it would be to convert 8 million merchants, particularly the smaller ones, she says.
"They know what Walmart does. They know what Target does. They just don't know what the other 7 million merchants do," she says.
Certification waiting game
Visa reported in January that only 17% of card-present merchants accepting Visa in the U.S. were using EMV at the time.
While several players have complained about the software issue, Oder says the real hold-up has been with getting that software certified for EMV, as well as certifying the entire card-accepting infrastructure. Certification involves months of work to validate every single processor, point of sale and terminal device in play in a merchant's environment. In a mega resort, for example, five to 10 different certifications could be required, each taking months to complete.
"Service providers and independent software vendors realized too late that EMV-ready doesn't simply mean 'plug in an EMV device,'" Oder says.
Merchants who did their part and obtained EMV equipment well in advance of the deadline ran into snags with processors that still hadn't finalized their EMV specifications, and thus couldn't allow for certifications to begin until as recently as a few months ago, Oder says.
"To frustrated merchants who are willing but unable to fully adopt this new technology, I say, 'be patient,'" Oder says, adding that the list of merchants that can accept EMV-enabled cards is relatively small and includes names like Home Depot, Target and Walmart.
"If you're not a company of this size and clout, chances are you're not being pushed to the front of the line for certifications," Oder says.
The merchant community has put the blame at the feet of the credit card industry for not getting them certified quickly enough. Craig Shearman, spokesman for the National Retail Federation, says that merchants rushed to meet the deadline and spent billions of dollars to obtain the new equipment, but because the card industry failed to provide enough personnel to certify these terminals to accept chip cards, the equipment is just sitting there.
"To put it very simply and bluntly, the retail industry has done its part. It's the credit card industry that's dropped the ball," Shearman says.
Even after EMV is up and running everywhere, Shearman contends that it still won't be enough to protect merchants from rising instances of credit card fraud because the new system requires that merchants provide a signature instead of a PIN at the point of sale.
Retailers for years have asked for chip-and-PIN technology, which is what most other countries, including the U.K. and Canada, rely on because they deem it the most secure method for acceptant payments, Shearman says. But instead, many U.S. issuers adopted chip-and-signature technology, which he says does not provide the same level of security as chip and PIN.
"We've got 'EMV lite.' We don't have true EMV," Shearman says.
If it's going to take several more months for the payments industry to complete the EMV migration process, then they may as well add the PIN capability in the meantime, Shearman says. "There's no reason to have to go through this twice," he says.
Eazell admits that ISOs and sales agents could have done a better job of educating and assisting merchants with setting up the new terminals.
"Merchants have the idea that if you don't get a new terminal, then you could be liable for a chargeback. But ISOs are never famous for their follow-up as far as training and holding the hand of merchants through a change like this," Eazell says.
Merchants bear some of the blame, too, and that plenty of them still believe they're immune to fraud, Eazell says. "I know there were a fair number of salespeople who did alert the merchants that it was coming, and then there were a fair number of merchants who pooh-poohed it and said, 'I'm not going to have fraud in my store,'" he says.
'Merchants are getting the stick'
Some acquirers say that merchants still don't see a compelling reason to include EMV.
"It doesn't mean increasing sales for them. It doesn't make it easier for them to accept payments," Marcous says. "Sure, there's the liability issue, but most merchants are not the victims of credit card counterfeit fraud."
Banks saw an incentive to issue the new cards because it allowed them to shift the fraud liability to the merchants, says Ken Musante, president of Eureka Payments.
For merchants, making the switch merely meant that they would get to keep things exactly the same, meaning that merchants still wouldn't be liable. But there was no real incentive beyond that, Musante says.
"Issuers saw a carrot, whereas merchants are getting the stick," Musante says. "So unless you do something, you're going to get harmed. I think that's the way that merchants feel, which is on the wrong side of it."
In addition to having no real incentive to switch to EMV, accepting chip cards can create logistical challenges for merchants at the point of sale. Simply processing a transaction takes a lot longer than it used to. Whereas a customer with a mag stripe card can swipe the card and have a receipt within a matter of seconds, a customer with a chip card has to insert the card and then wait – sometimes for the better part of a minute – for the machine to complete the payment and release the card.
"Waiting for the consumer to put their card in there and having to leave it in there for the duration takes more time than it's worth because you're not likely to see a chargeback on a very small item," Musante says.
Given that it took the better part of a decade for other countries to transition to EMV, some industry members say they're not too surprised that the U.S. still has a ways to go before all merchants have both EMV equipment and the software and employee training to support it.
The U.S. rate of conversion to EMV has actually been relatively quick compared to other countries such as the U.K., which took about eight years to achieve 90% conversion, Karimzadeh says. "Although the U.S. is a bigger market than the U.K., the U.S. should be at more than 90% in three years or so," he says.
The EMV Academy has been training larger entities, including financial institutions, issuers, ISOs and merchants, to help them better understand the EMV process. This has taken a little more time on the terminal side than on the issuer side, Karimzadeh says, because it's been costing ISOs money to convert their merchants to the new terminals and they don't see the benefits of conversion.
Several parties involved with the EMV rollout need to follow through with their responsibilities, said Industry analyst Todd Ablowitz, president of Centennial, Colo.-based Double Diamond Group LLC:
• The banks that issue the cards should provide consumers with information about EMV.
• The equipment manufacturers that make the terminals should make the checkout prompts more intuitive for both consumers and merchants to follow, so that less training is necessary.
• ISOs should explain to merchants why they're making this change and how it helps them.
• Consumers should demand it. "If you go to Canada, the consumer is not going to put up with a merchant swiping their card," Ablowitz says.
Ultimately, Ablowitz says, all of the stakeholders in the EMV migration hold some level of accountability.
"EMV requires everyone in the ecosystem to be involved, so you can expect it to take a long time," he says. "Even in the U.K., it took nearly 10 years from the time it was announced until the time it was fully adopted. That's how these things work."