U.S. ATM EMV Conversion Well Past Halfway Point Halfway Between Network Liability Shifts

About 60% of the nation’s approximately 450,000 ATMs can now accept EMV chip cards, according to industry executives familiar with the years-long process of transitioning from magnetic-stripe cards.

“We look at true chip transactions that are coming from terminals,” says Bruce Owens, vice president of product for the North American ATM channel at Mastercard Inc. “Right now, at the end of the first quarter, we’re somewhere around the 60% conversion rate in the United States.” In other words, 60% of ATMs are sending “chip transactions in some form or another,” he says.

Under payment-network liability shifts, ATM deployers will bear the cost of counterfeit fraud from a transaction if their devices can’t read a chip card. Mastercard and Discover Financial Services’ Pulse electronic funds transfer network set their liability shifts for October of 2016 (Mastercard delayed its shift for about three weeks from the originally planned Oct. 1), while Visa Inc. and most of the other debit networks have scheduled corresponding liability shifts for this coming Oct. 1. But since nearly all ATMs accept Mastercard cards, most deployers worked against the 2016 date.

Banks have largely completed their ATM EMV upgrades, Owens told Digital Transactions magazine for a May story about the EMV changeover. “All the big banks have converted,” he says. Credit unions got off to a slower start, “but they’re getting caught up,” he adds.

Independent sales organizations and merchants control in the high-50% to 60% of the nation’s ATMs, according to the ATM Industry Association, a trade group of mostly retail ATM deployers and ISOs that has offices in Sioux Falls, S.D., and London.

“The retail outlets are a little behind,” says Owens. But he notes that some big non-bank ATM deployers such as Houston-based Cardtronics plc have largely converted.

About a year ago, ATMIA surveyed its U.S. membership and found that 58% of respondents said they would have the majority of their upgrades done by the end of 2016, according to David Tente, ATMIA’s executive director for the U.S. and Latin America. And 79% of respondents predicted most of their upgrades would be done by the end of 2017. “Bottom line, the [2016] number we had pegged seems to be pretty accurate, which makes me happy,” says Tente. “Hopefully, the number we had pegged for 2017 will be pretty accurate.”

Owens predicts that about 75% of ATMs will be EMV-capable by year’s end. That’s not far from ATMIA’s prediction. In either case, the high chip-acceptance rate will make the remaining non-EMV machines juicy targets for fraudsters, forcing deployers to upgrade or remove most of them. “The risk is too great to be exposed,” Owens says.

Industry executives predict a decline in the number of ATM deployments once all the networks’ liability shifts take effect because owners will decide the costs of upgrading or replacing some old machines are not worthwhile. But exactly how much shrinkage looms is a matter of guesswork. Owens estimates 5% to 6% of the current base. “There are some ATMs in the market that are going to disappear because of EMV,” he says.

Tente goes somewhat lower, saying about 4% of ATMIA’s survey respondents indicated they would retire old machines rather than upgrade them. And some deployers may elect to retain non-EMV ATMs in low-risk locations, he adds.

The pace of the EMV conversion at ATMs appears to be ahead of the corresponding conversion at the point of sale, even though the networks’ POS liability shifts took effect in October 2015. About half of bank card purchase transactions are coming from chip cards used at live EMV terminals. But some merchant sectors, such as hospitality, have had problems getting EMV rolled out. And the card networks in December postponed their planned October 2017 EMV liability shifts for automated fuel dispensers until 2020 after hearing complaints from petroleum retailers about the costs and operational problems of bringing EMV to gas pumps.

“Compared to the merchant side we’re doing pretty well,” says Tente.