Its taken the U.S. years to embrace, but the migration to Chip and PIN payment technology and its associated liability shift will finally happen in 2015.
Given the magnitude of the transition, U.S. banks will have to replace anywhere between 600-800 million credit and debit cards, and there will most certainly be bumps in the road. Retailers dont have it easy either; there are currently 13-14 million point-of-sale devices in the U.S., and retailers are highly incented to replace them with this technology.
The clock is ticking for U.S. banks and retailers, especially those with hundreds or thousands of locations, to get serious about this transition if they have any hope of making the deadline.
Here is what we can anticipate between now and October 15, 2015.
Half of All Retailers Wont Meet the October Deadline. Conversion from swipe and sign wont be cheap, theres hardware to acquire, installation costs, personnel to train, perhaps physical modifications to be made, etc. The aggregate costs of upgrading U.S. based card terminals is estimated to reach nearly $7 billion. Additionally, merchants wont see any new revenues as a result of upgrading. Many retailers and restaurants will weigh these costs against the potential for fraud charges and take their chances. For the first time they will be exposing themselves to fraud charges that could total in the millions of dollars. It wont take long for the bad guys to figure out who is still using mag stripe technology. Once a couple of retailers have to eat large sums of fraudulent charges, most of the remaining merchants will drag themselves onboard.
The Deadline Will Spur an Increase in Fraud.Between now and October 15, the rate of fraud will increase to record levels as fraudsters realize their easy pickings are coming to an end. After the deadline, we will start to see record levels of Card Not Present (CNP) fraud in the U.S., just as it has risen elsewhere Chip and PIN has been adopted.
Q4 2015 Financial Results will Suffer for Slow Adopters. Merchants that delay adopting Chip and PIN by the liability shift deadline will feel the impact on their bottom lines as their failure to migrate makes them easy targets for crooks.
Apple Pay Will Gain Traction; Chip and PIN Is Here to Stay.While Apple Pay and other mobile payment technologies will continue to rise in popularity, in the near-term their adoption wont make contactless payments ubiquitous. As were already seeing, some merchants are balking at the costs of implementing Apple Pay. For the foreseeable future, Chip and PIN technologies will remain a more dominant point-of-sale technology.
Chip-Enabled Cards Will Be Slow to Circulate. Only about one-third of debit and credit cards will be upgraded by October 2015. As a result, many merchants will see this as justification to delay making the point-of-sale technology transition.
Device and Expertise Shortages. There are millions of credit card terminals in the U.S. Thats a lot of equipment to replace or upgrade. Starting in the third quarter, merchants wanting to make the Chip and PIN transition will face limited device availability and scarcity of already-committed deployment partners and application developers. Many merchants will run out of time for testing and to get EMV certification on their payment process.
Lobbyists Will Push for Delay. Business interests will lobby Congress to delay the deadline to spare retailers of the liability shift until a later date. The closer we get to the deadline, the more imminent this will become. The big players among the big banks and retailers will have already converted their systems so they wont feel compelled to delay implementation. A delay isnt impossible but dont count on it. Any more big-dollar security breaches like those at Target and Neiman Marcus will only heighten the call for quick action. If Congress imposes a delay, merchants will get a short reprieve but the conversion is coming and the best course of action is to plan for its implementation next October.
It doesnt take a crystal ball to see that embracing the migration to Chip and PIN technology now will give firms greater control over implementation costs, reduce their potential exposure to liability risks, extend the time window for deployment that will rapidly close, and offer them access to a finite supply of experienced talent and hardware. All these elements combine to make a compelling case to act sooner rather than later.
Dick Mitchell is solutions director of technology deployment services at Randstad Technologies.