US Merchants Remain Unconvinced by EMV

I presented at the CARTES America conference in Las Vegas last week. It was a great event with many interesting conference sessions and good opportunities to network. One of the highlights for me was the opening keynote with panelists representing various merchant organisations, such as Merchant Advisory Group (MRA), National Restaurant Asociation (NRA) and The Association for Convenience and Fuel Retailing (NACS). The message was pretty clear - merchants are not convinced about EMV, certainly not in its present form. At the very least, they have genuine concerns about costs, some of the decisions to-date and the issues that remain unresolved:

• According to the panelists, "even if the fraud rates were to double to 8bps, that is still not enough to cover capital expenditure paid over 30 years," the "ROI is just impossible." While it is easy to dismiss merchant cost concerns as bargaining, merchants are not looking just at the cost of terminal replacement. For example, apparently many US fuel stations today do not have sufficient bandwidth for EMV transactions, which means ripping off and upgrading station forecourts. And while that in itself is expensive, many such changes would require certifications and approvals from Environmental Protection Agency (EPA) further escalating the costs.
• Merchant training is also likely to be a significant undertaking - "smaller members don't know what the letters (EMV) even stand for", they are "behind on education."
• Merchants are concerned about the decision not to go uniformly for Chip and PIN. In their view, the continued presence of signature as a cardholder verification mechanism only confuses the market.
• Rightly or wrongly, they are also concerned about the chip being a "property of a few stakeholders" and what it means to them in terms of transaction visibility. "We will not buy information back from the issuers about our customers."
• Also, ambiguity on Durbin stifles progress by merchants. While the panelists described Durbin amendment as "the most significant positive change for merchants", the requirements to have two unafilliated network applications on the same card complicate EMV implementation for debit cards.

At worst, some seem to view EMV as yet another conspiracy of banks and card schemes against merchants. As one panelist described the situation: "Liability for signature transactions in brick-and-mortar environment today are with the issuers, while we (merchants) pay premium for the e-commerce transactions. With EMV, you are now transferring the liability to us for brick-and-mortar transactions (assuming merchants don't migrate to chip), while doing nothing to solve e-commerce issues. And as we know, with EMV, fraud migrates to e-commerce, so we are getting hit twice." So what does it all mean? It is very likely that 2015 deadlines will not be met. Or in other words, the merchants will not be ready and if the issuers are, the merchants will be hit by the liability shift. As I understood, if merchants had their way, they would:

• Get rid of signature and move to a "common customer experience around the world", i.e. Chip & PIN;
• Get rid of PCI, or at least reduce the scope;
• Get interchange relief or help with terminalisation;
• Solve e-commerce.

Banks and schemes can agree or disagree with these positions. What is important is that there is a dialogue and all parties are involved. Merchants are a crucial constituent in the payments equation and their voice has to be heard. I know merchants are already active participants in key forums (e.g. EMV Migration Forum), and they should continue to collaborate with the industry to find the best solutions for the market.