A new era of payment processing has been slowly approaching: After October 2015, retailers will need to be EMV-compliant or face eventual fraud liability. Credit card chip technology has been chosen as the current champion of fraud prevention, which is why the U.S. is setting a hard deadline for retailers who haven’t yet made upgrades to their payment systems.
Will there really be a chip card reader in every store by October? Probably not. Smaller, traditional businesses will likely be slower to adopt new security measures due to lack of familiarity. Without widespread consumer or retailer knowledge of chip-based security, the U.S. is going to see a sputter rather than a spark in EMV adoption come October, which may hurt small businesses further down the line.
The slow rollout of EMV credit cards
There are fewer people using EMV-enabled credit cards than expected, considering the upcoming nationwide payment adoption plan. Strategy and research company Javelin reported that in November 2014, most major U.S. banks had issued chip cards to less than 20 percent of their consumer base. This included banks like Capital One, TD Bank, and Wells Fargo. Citibank sent EMV credit cards to a little over 40 percent of its customers, which ranked it above all other banks – yet this was still under half of the bank’s overall customer base.
Without proper education, chip card holders won’t even be able to take advantage of improved credit card security. Javelin stated that 47 percent of existing EMV credit card holders were primarily made aware of the technology through printed material provided with the card. However, Javelin also found that this printed material was the least effective channel for raising EMV awareness amongst new cardholders.
The slower acquisition of EMV credit card readers
The majority of U.S. retailers are as unaware of EMV technology integration as their customers. An Intuit survey conducted in April 2015 revealed that 42 percent of small business owners have not heard of the EMV liability shift deadline. This general lack of information amongst consumers combined with pushback from retailers will cause the mandatory October migration to stretch far beyond its due date.
“The EMV adoption process can be lengthy and complicated.“
Perhaps retailers are simply pretending not to know about the mandate, as the EMV technology adoption process can be lengthy and complicated. According to the Intuit survey, 57 percent of respondents cited the price of a new terminal or reader as the top reason for not upgrading. More than a matter of buying new hardware, other steps include integrating hardware with existing systems, terminal certification, and employee training. This process is not an easy one, so many retailers may choose to postpone the migration for as long as they can.
Unfortunately, putting off the transition may end up costing unaware businesses. Intuit’s survey suggested a grim reality: Eighty-six percent of small businesses that do not migrate might not be able to handle new legal and financial liabilities.
The looming liability shift
In the long run, it falls on banks and retailers to provide education on EMV chip cards and offer compliant payment terminals. The upcoming October deadline could be catastrophic for unprepared businesses once the liability shift comes into practice. Visa clarified that responsibility will fall on either the card issuer or the merchant to be liable for fraudulent losses if they have not provided the means to use EMV chip card technology.
With the potential for big liability charges, why haven’t we seen more small businesses scramble to become EMV compliant and protect themselves? Other than a lack of education, the threat of liability probably doesn’t feel “real” to many business owners. When companies are focused on the bottom line, they’re more likely to put off expenditures if a perceived threat has a low chance of actually occurring.
EMV chip technology will not be widely used by the end of 2015. Consumers and retailers remain largely uneducated, while banks continue to slowly issue cards to their customers. Retailers may only make the jump to chip-based card security once the liability shift presents their businesses with a very real financial threat.
