By Ray Birch
BROOKFIELD, Wis.—Six months into the move to chip cards in the United States, why is the U.S. migration to EMV behind schedule?
According to analysts, the reasons include forecasts that were far too ambitious for a payments infrastructure that is the most complex in the world, and insufficient research being conducted to accurately gauge merchant readiness.
But all of that said, those same analysts believe progress has generally been good. Consensus is that early expectations for merchant readiness were clearly unrealistic, but forecasts on issuer progress were spot on.
“Despite those original projections, progress has been good,” said Jamie Topolski, director of alternative payment strategies, output solutions, at Fiserv. “We are ahead of the pace of other economies that have converted to EMV, and our payments infrastructure is easily the most complex.”
On the issuing side of the house, the U.S. is on a good pace, explained Barney Moore, portfolio consulting services manager at CSCU in Tampa, Fla. “Credit unions and banks both have made good progress, especially with credit. The debit side is starting to ramp up now. The merchant side is where the issue is. Expectations were that the merchant community would be much farther along at this point.”
Skeptical Of Predictions
Jamie Topolski
Topolski, vice chair of the EMV Migration Forum steering committee, recalled that many predictions made well ahead of the Oct. 1, 2015 liability shift deadline called for 60% to 70% of merchants to be ready by the deadline or by the end of last year.
“I was always skeptical of those predictions, because I think most were based on quick merchant surveys that asked about the store’s intent,” said Topolski. “Ask someone a quick question about whether they think they will be ready and many will say yes. But once you begin to really dig into what the changeover to EMV is about for merchants, and the work that has to be done, you realize this will take longer than you think.”'
MasterCard recently reported that one-million merchants, about 20% of retailers nationwide, are handling EMV transactions today.
“There still is a lot of work to be done,” said Topolski.
A new report form CardHub indicates that 42% of retailers have not updated POS terminals in any of their stores. But the real bottleneck, say analysts, is updating the terminal software and then getting through the certification process with each of the card networks.
Flip The Switch
In many stores the switch simply hasn't been flipped yet. Getting the new hardware is the first step, and in many cases the easiest step. New software comes next. The merchant either needs to load newly developed software or integrate new software from a third party into its back office systems to allow the terminal to accept EMV. Then the new terminals and the merchant need to undergo a certification process with each of the card networks.
The certification queue is currently very long, and backed up, reports indicate. That has even led to a few merchants suing payments networks over fraud costs they have incurred due to the certification delay.
“Just like the issuer has to be certified, so do the retailers,” said Moore.
MasterCard just reported in March month-over-month growth of 10% in the number of merchants who are now accepting chip cards. Topolski said that is an indication the certification process may be speeding up.
What has been surprising to some is that the slowdown among merchants is not coming from the small retailers, but instead from the mid-sized stores. Reports indicate that the big-box retailers, such as Walmart, worked long in advance of the liability shift deadline to prepare for their large undertaking.
Barney Moore
Mom-And-Pop Learn Quickly
And while mom-and-pop retailers were lagging behind bigger stores in their EMV awareness and knowledge last year, they caught up quickly. Plus, the changeover process in their stores is relatively simple.
“The mom-and-pop store asks their vendor for an EMV upgrade and typically just change out the system at the counter and are good to go,” said Topolski, noting the process for mid-size merchants is not that simple due to their larger, more complex POS systems. “I think many of these merchants were slow to prepare, as well.”
Moore agreed.
“The small retailer’s implementation is much less complex, and the big-box retailers, who have big resources, got out ahead of the game,” said Moore.
Issuers On Track
As analysts stated, issuers today are at about where forecasts projected. In March Visa reported there are 217 million Visa EMV cards in the U.S. today, more than in any other country—115 million credit, 102 million debit. MasterCard reported that approximately 50% of their consumer cards—credit and debit—are EMV.
Debit continues to trail credit as issuers last year delayed debit migration planning due to previous concerns around the EMV debit routing structure not being finalized.
“I think some of the early predictions around the U.S. conversion to EMV were ambitious,” reiterated Moore. “So I am not surprised that we are not as far along as some of those early forecasts. And, don’t forget, there have been distractions that need attending, such as tokenization and mobile payments. But I think where we are today with EMV is a good place.”