ATLANTA—Confusion in the payments marketplace among both merchants and issuers is a major reason why the U.S. EMV migration has not proceeded at a faster pace, with only about 20% of POS transactions being chip-on-chip today—chip card and chip terminal.
That assessment is from Philip Andreae, VP of field market with Oberthur Technologies North America.
“Today we talk about 1.2 million merchants that are EMV ready and there are about eight million merchants nationwide, so we are a long way from being done,” Andreae said.
Andreae’s comments are part of a series of interviews by CUToday.info marking the one-year anniversary of the EMV liability shift.
Andreae explained that tier one—big box—and tier four—mom-and-pop stores—have progressed well in getting EMV terminals in place and turning them on. The major retailers were first to move, doing so before and just after the October 2015 liability shift deadline. Small merchants, initially considered to be slow starters, also got up to speed quickly.
Small Merchants Nimble
“It was much simpler for the small merchants to be EMV ready,” said Andreae. “They took what is usually one terminal out of the box, followed the quick-start guide, turned it on, tried a transaction and packed up the old one"
He said that is a big difference from what larger retailers have experienced with their complex payments systems and a much lengthier certification process—which backed up as 2016 progressed. What has stymied many of the tier two and three merchants, stores that fall between mom-and-pop shops and big box merchants, is confusion over how to proceed once they had their terminals installed, said Andreae.
Andreae said acquirers and ISOs (independent sales organizations) did not do a great job of sharing details with merchants on EMV, mainly around debit processing and routing. This was “confounded by the delay in creating a coherent and mutually acceptable approach to supporting debit routing,” said Andrea, adding that credit has moved smoothly among all merchants.
“You ended up with merchants willing to go out with credit only, across all four tiers,” said Andreae. “But with debit, you had many tier two and tier three merchants who were
dependent on ISOs, software vendors and value-added resellers, many of whom did not take the time to read the specifications on EMV. They believed you read the CliffsNotes and implement. Unfortunately, payments and EMV is very complicated. You have to do the work, read the specifications, consider the unique requirements of your environment before you can expect your team to understood and proceed to implement properly.”
Andrea said merchants are improving and more are steadily converting their terminals and effectively accepting both credit and debit chip cards now. He said issuers have performed well, with credit card base conversions ahead of debit. He cited numbers shared by many experts, that issuers stand 85%-90% converted with credit and in the 60%-70% range with debit.
Debit Concerns
Andreae noted that not only did not settling debit routing until 2015 slow issuer conversions of their debit card bases, but also the differences at merchant terminals in how they accept debit EMV. He said that led to concerns among issuers for their debit cardholders, who represent an important checking account relationship.
“Issuers were unsure of what the consumer experience with debit would look like at the merchants, they did not feel confident in the experience their customers would have,” he said. “They did not feel confident that putting a debit chip card in customers’ hands would not result in calls back to the financial institution that their card was not working properly.”
Overall, given the complexity of the U.S. payments market and how difficult it can be to get sides to cooperate, he said the migration gets a 2.75 on a five-point scale.
“If I graded the migration from a balance sheet perspective as an issuer, from those early to market with EMV, I’d give it a four,” said Andreae. “If I was a merchant late to market with EMV, held back by long certification lines and hit with additional fraud costs, I’d be screaming.”
Additional Stories In The EMV Series