House Panel Hears How EMV Rings Up a Big Tab for Some Small Businesses

Implementing EMV chip card payments can be anything but a cheap and easy plug-and-play for small businesses, according to testimony several merchants gave before a U.S. House of Representatives committee Wednesday.

Art Potash, chief executive of Potash Markets, a 65-year-old family-run Chicago grocery operation with three stores, told the House Committee on Small Business that his company in May installed EMV point-of-sale terminals in two stores at a cost of $1,000 per lane.

“For the two stores, this means an upgrade cost of $8,000 just to conduct EMV-compliant payment transactions,” he said, according to his prepared remarks. “This is a large investment to our small business, but we are willing to make it to protect our customers and hopefully get a reduction in fraud and our fraud expenses.”

Potash’s merchant acquirer, however, has yet to upgrade the back-end software, and that may not happen until November or later. Thus, the stores are not yet officially EMV-compliant and “are now facing a holiday season exposed to greater fraud liability as we wait for our merchant acquirer to complete our transition,” Potash said.

Potash made his comments during the second of the panel’s two-part hearing titled “The EMV Deadline and What It Means for Small Businesses.” The first session on Oct. 7 included comments from Visa Inc., the Electronic Transactions Association, and financial institutions. That session came just after the payment card networks’ U.S. EMV liability shift that makes the merchant or card issuer involved in a transaction but can’t support an EMV payment responsible for any resulting counterfeit fraud.

Jared Scheeler, managing director of The Hub Convenience Stores Inc., which has four locations in western North Dakota, said in his prepared remarks that the average cost for upgrading the in-store payment system and fuel dispensers at three locations was $44,500 per store. At the fourth store, Hub bought six new EMV-capable fuel dispensers even though the old ones had years of useful life left, according to Scheeler.

“The new dispensers were $17,000 each, and the in-store point-of-sale card reader was $2,000. So, the upgrade cost us more than $100,000 at this site,” said Scheeler, who testified for NACS, formerly the National Association of Convenience Stores.

Despite spending more than $230,000 on EMV so far, Hub still isn’t taking chip card transactions. That’s because it processes through its fuel-brand provider, Exxon Mobil Corp., which Scheeler says “has not yet implemented EMV technology in their card-processing network. They are not mandating an in-store terminal switch until Oct. 1, 2016, and they are assuming any liability between now and that date.” (The card networks’ liability shifts for fuel dispensers are set for October 2017.)

Keith Lipert, sole proprietor of The Keith Lipert Gallery in Washington, D.C., called the Oct. 1 shift “an arbitrary date that the duopolistic bank card brands dictated without seriously considering its effect on millions of small businesses,” according to his written testimony. “No one from my bank processor or existing supplier even contacted me about the need to add a new EMV device, let alone a deadline by which to do so. The most shocking part of this news was that the already sky-high swipe fees will stay high and are rationalized as the cost of fraud prevention, even though the liability for fraud is now being shifted to me.”

Lipert later added that “I asked my payment technology rep when I could expect a new device if I ordered it this month, and was told the equipment is on back-order.”

Lipert is a member of the National Retail Federation’s board, and he and Potash reiterated the NRF’s long-standing position supporting PIN-entry with EMV cards. Most banks are going with signature authentication on their EMV credit cards. Potash ridiculed arguments from card networks and banks that traditional PINs, which are static authenticators, are an outdated, inferior security technology.

“We all agree, technology and industry are evolving and improvements are made every day, but here is what we know today: PIN works today. It reduces fraud, period,” Potash said.

EMV has been a relatively simple experience for Jami Wade, owner of Capitol City CORK and Provisions, a wine shop and restaurant in Jefferson City, Mo., and executive director of the single-screen Capitol City Cinema next door. The total cost for installing a chip-enabled terminal at the restaurant will be about $300, she said in her written remarks. The terminal isn’t yet live, but she expects it to be by the end of the month.

“I look at it as paying a small premium for an insurance policy to protect the restaurant against a potentially significant downside,” she said. “After having survived the first few years running my own business—a period in which many new startups fail—I cannot imagine leaving my business vulnerable to external threats when there are reasonable steps that I can take to protect it.”

Wade also expects to be able to get an EMV reader for $50 for the theater.