Most Contend Only a Minority of Merchants Will Be Ready for EMV, Finds a DTN Survey

In 17 months, a crucial step in the migration of the U.S. payment card industry from the venerable magnetic stripe to smart cards with embedded chips will be under way. But there is little hope that a majority of merchants will be ready to accept the new cards, finds a Digital Transactions News survey.

Both issuers and merchants face an October 2015 deadline from the major card networks to be prepared for EMV, a 20-year-old chip card standard already well established in the rest of the developed world. By that date, liability for counterfeit card fraud will shift to the party not equipped for EMV. Gas stations have until October 2017.

Indeed, about two-thirds of respondents say no more than 40% of merchants will be ready to perform chip card transactions using the Europay-MasterCard-Visa standard. The survey asked how many merchants will be ready by October 2015 to perform EMV transactions. Thirty-four percent said no more than 20% will be ready, while 34% said 21% to 40% will be ready, outnumbering the optimists. Twenty percent said 41% to 60% of merchants will be ready and 11% said 61% to 80%. None said 81% or more.

Count Robert Ensminger, chief executive of Vancouver, Wash.-based Alpine Payment Systems, among the more skeptical. Less than 20% of merchants, of the small and mid-size segment, will be ready, he says. Many merchants are not eager to change their payment terminals, he says.

“It seems like they’re all guarded about EMV,” Ensminger says. “It's because of the cost.” The problem, he says, is that they haven’t been presented with enough value to justify the cost. To justify EMV’s price tag, acquirers should talk to merchants about how younger consumers want to pay with their smart phones, and how, in the next year or so, many consumers will have chip cards and want to use them, he says. That approach differs from one that relies on fines or other penalties. “Rather than presenting it as a threat if you don’t have it, we present it as a value add if you do have it,” Ensminger says.

The likelihood that small and mid-size merchants will lag in EMV adoption is not implausible, says Jane Cloninger, a partner with San Francisco-based payments consultancy Edgar Dunn & Co. “If you look at other markets that adopted EMV, there was a large percentage of merchants that didn’t meet the deadline,” Cloninger says. That would not be atypical, she says.

Several factors may play a role in why smaller merchants will lag. There had been uncertainly about the technical elements necessary to process EMV debit transactions when the Durbin Amendment required merchant choice. The original specification for EMV debit accommodated only one network. Most debit networks have adopted either or both Visa Inc.’s and MasterCard Inc.’s EMV debit technology. With these moves, this barrier to EMV debit is falling, Cloninger says.

“It’s a bit of that and a bit of human nature to procrastinate,” she says. “And probably a lack of clarity about what the market is going to do.” And, while smaller merchants tend to have simpler payments, there are those with integrated point-of-sale systems that will take some work to make them EMV-compliant, she says.

There’s also the fact that many small merchants are unaware of EMV, let alone compliance deadlines, says Julie Conroy, a senior analyst at Boston-based Aite Group LLC. In a survey her firm conducted last year, three-fourths of the small businesses had not heard of EMV, she says. “The small guys don’t even know the liability shift is coming at them,” Conroy says.

The good news is that a payment terminal swap may be all that’s needed for some, she says. “The little guys will lag, but they may catch up because it’s easy to get them upgrades.”