The story of EMV in the United States has already played out. Surprisingly, the pivotal blow landed two years ago.
The interchange-fee drama of missed opportunity, failed disruption and clashing powers actually peaked in 2013 after the much-publicized data breach at mass-merchandise giant Target, at least according to one tech historian.
While most convenience-store retailers failed to grasp its significance, the consequences today are nothing short of staggering. By conservative estimates from Alexandria, Va.-based technology standards firm Conexxus, c-stores and their forecourt formats may wind up shouldering as much as $8.9 billion in upgrade, financing and maintenance costs for EMV (short for Europay, MasterCard and Visa), which have a 30-year payoff and no tangible ROI.
“The turning point was Target,” says Gray Taylor, executive director of Conexxus, the technology advisory group for NACS, also based in Alexandria, Va. “At that point, credit-card companies convinced the public that EMV was the way to prevent future data breaches.”
If consumers were truly convinced, then retailers publicly opposing EMV could come off as anti-consumer, Taylor says.
The real damage, according to Taylor and other c-store retailers, suppliers and supporters, is that EMV hardly addresses the real threats to data security or even the more specific problem of reducing credit-card fraud. Yet retailers are shouldering the cost of both technology migration and fraud. Officials with MasterCard, Purchase, N.Y., and Visa, Foster City, Calif., hold to their stance that EMV will play an integral role in reducing credit-card fraud, if not the larger scope of data security. (See related story.)
Wherever the truth lies, the reality for retailers, even those outside the c-store space, is one of bedlam. Ed Freels, director of information systems for the 35-store Honey Farms, Worcester, Mass., is scrambling to make virtually impossible deadlines. He bought EMV-capable PIN pads months before the Oct. 1, 2015, in-store liability-shift date, but as of early fall, he was expecting to wait another three months for the model he ordered. When he finally gets the devices, his retail-technology provider won’t have the processing software because the banks released their EMV specs late in the game.
“Everyone is trying to hit this arbitrary deadline set by the card brands,” Freels says, referring to the 2015 date to install EMV-equipped in-store point-of-sale (POS) and the Oct. 1, 2017, date for dispenser POS, “all so the banks and card brands can pass their fraud back to the retailer.”
After those dates, credit-card companies will shift liability for fraudulent purchases to retailers, but only if fraud occurs when a customer uses an EMV-enabled “chip” card and the retailer is not equipped.
Beyond hardware, Taylor says costs will include technician fees, pavement tear-ups in some cases, and business downtime. (See related story.) He estimates the cost through the 2017 forecourt deadline to hit $3.9 billion, with financing and maintenance pushing the total to $8.9 billion over 10 years.
With no return and a potential 30-year payoff as noted by a major-oil source, Taylor calls the scenario senseless. No businessman would do a deal “without a 25% return on a five-year payoff,” he says.
So how did the industry get here?
Retailers had rallied against mounting credit-card interchange fees through the 2000s, sensing a trajectory that in 2006, according to NACS State of the Industry figures, saw those fees surpass what the entire channel earned in pretax profits. Some relief came with the Durbin Act in 2010, which put limits on what card brands could charge in debit-card transaction fees.
The potential disruptor was mobile phones, Taylor says. Coupled with the use of Automated Clearing House (ACH), retailers could bypass the credit-card companies altogether and give the savings in interchange fees back to customers in the form of pump-price “rollbacks.”
Many regional, tech-savvy chains such as Flash Foods, Waycross, Ga.; Cumberland Farms, Framingham, Mass.; and The Spinx Co., Greenville, S.C., did go this route, initially establishing card-based loyalty programs and transitioning those customers to mobile payment as technologies improved.
At the same time, the introduction of mobile “wallets” from the likes of Google, PayPal and most recently Apple and Samsung met with a largely indifferent public, failing to see the alternative as better or more convenient than plastic. Even a cross-segment of retailers who founded the MCX mobile wallet in recent years have struggled. Nonetheless, mobile wallets meant another threat to the credit-card companies.
In the end, Taylor says EMV has allowed credit-card companies to perpetuate their position in the payment process through the next generation of equipment in the face of competition from mobile wallets and ACHs.
Historically, EMV has been in place in Europe, Canada and Australia for decades, so the move brings the United States to its global standard—one that puts the likes of Visa and MasterCard squarely in middle of the process.
“EMV is not data security,” says Freels of Honey Farms. “It was created to reduce credit-card fraud. We should be focusing on protecting data from criminal and state-sponsored threats rather than spending precious dollars on implementing a decades-old technology mandated by financial corporations.”
With the move to EMV part of the c-store retailer’s reality, Taylor says the argument now is one of mitigating risk. Steve Loehr, outgoing NACS chairman and vice president of operations support for Kwik Trip, La Crosse, Wis., agrees, saying the legislative push today needs to be about including personal identification numbers (PINs) on all chip cards as an added security feature. “The battle has switched from the deadlines to including PIN,” he says.
To Loehr, the story of EMV is one of retailers vs. the credit-card companies—forces with a considerable amount of “power and control over our industry.”
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