Visa’s CEO recently reported that more than 750,000 locations, representing 17% of the U.S. face-to-face card-accepting merchant base, are accepting EMV chip cards. While everyone in the industry agrees that it will be quite a while before the numbers reach “critical mass” (whatever that means to you), there are two key questions for today. The first is pretty easy to answer; the second, perhaps, not so much:
- Why haven’t more merchants installed EMV-capable devices?
- Why are there so many EMV-capable devices already installed that have not been enabled to actually accept chip cards?
The first question has been discussed more extensively and the answer is a combination of factors:
- Almost every new terminal deployed these days is EMV-enabled, but the millions and millions of terminals at “mom and pop merchants” have a very long useful life – 7 years gets quoted quite often. Why incur the expense and hassle of upgrading when you are highly unlikely to ever see a counterfeit card? I don’t think the local dry cleaner, daycare center, or dog groomer is particularly worried. Having said that, Glenbrook has had many conversations with our larger merchant clients who have chosen to implement EMV because they are worried their customers might think they don’t take security seriously. Reasonable people can disagree whether their customers will even notice or care (with the likely exception of Target customers), but one can certainly respect the position of these merchants.
- ISOs and acquirers have only recently been out there in force, trying to get their installed base of merchant terminals upgraded. But the timing has been off. Smaller merchants who had never heard of EMV didn’t quite get the message until September, a month before the liability shift, or when they received chip cards of their own. By then, there were reports of terminal shortages (since resolved).
Fair enough. But what about my second question? Why do I encounter so many terminals that have the EMV hardware installed (pretty much anything deployed in the last few years) but have not yet been enabled to accept chip transactions? You don’t have to look too hard to find them – they’re at McDonald’s, Safeway, and a slew of other merchants huge and small. Why are they not performing EMV transactions? There are a number of reasons:
- Make Someone Else the Trainer. Some merchants, particularly the large ones, don’t want to “educate America” on how to perform an EMV transaction. This was especially acute during the holiday season. They see EMV as just slowing down lines and chose to wait until consumers learned what to do—and do it quickly—at someone else’s store.
- Big Effort. EMV deployment is a big project for large merchants. POS systems need to be modified and often upgraded and always certified (no small nor quick task). Clerks have to be trained. These POS change projects usually span years, not months. Many pieces to the EMV puzzle, particularly regarding debit, were not in place in time for the liability shift deadline.
- Hurry Up and Wait. Many, many, many integrated POS systems (IPOS), especially the electronic cash register software for these systems, were just not ready in time. Even if the software was ahead of the game, they faced long certification queues at many acquirers. I believe this is going to be a problem for a while.
- Waiting Tables. Restaurants pose unique challenges. There are staggering numbers of large and small restaurants with terminals capable of taking chip cards, but unfortunately, the software is way behind, often due to the added work needed to deal with tips and tip adjustments. Many in the industry believe the POS software firms serving the restaurant industry simply underestimated the time and effort required to accommodate EMV. These are many of the same companies, mind you, that already support EMV in Europe and beyond. And of course, once complete, each still needs to be certified by a plethora of acquirers. And that takes time as one of our huge national restaurant chain clients knows. They won’t have an EMV-enabled solution ready until late 2016.
I think it’s interesting to talk to fellow payment geeks who simply shrug their shoulders and say “whatever, who cares about cards? we’ll all be using our phones to pay soon enough.”
I’m definitely not in that camp, but some of my colleagues at Glenbrook do joke that if you really want to make contactless look good, make the alternatives look worse. I think we’ll all get used to dipping and waiting at the POS, but the truth in that humor points directly at the spread of contactless in Canada and the UK.
Let me know your thoughts!