Merchant Groups Get in Last Licks About EMV Before Liability Shift Sets in Thursday

By John Stewart

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U.S. merchants and their trade groups have been less than thrilled with how the banks and card networks have managed the EMV rollout, and on Tuesday they got in one last blast before the liability shift occurs two days from now.

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The Washington, D.C.-based National Retail Federation and the Merchant Advisory Group, a Minneapolis-based trade group for 175 big-box retailers and airlines, co-sponsored a 35-minute national press conference by phone to decry matters ranging from what they called a “half-baked” solution to card fraud to the billions EMV is costing merchants “to fix” a card-payments “system” created by banks.

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In the conference call, Mallory Duncan, senior vice president and general counsel for the NRF, and Liz Garner, vice president for the MAG, also underscored the difficulty merchants are having getting point-of-sale gear certified so they can accept EMV cards. Merchants so far have spent between $30 billion and $35 billion on POS equipment for EMV, Duncan estimated.

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“We’ve seen a tremendous backlog,” said Garner. “That has kept us behind schedule.” Chiefly, she said, the culprit has been certification for EMV debit cards, for which specifications weren’t available until recently because of the need to rework EMV’s 20-year-old code to comply with Durbin Amendment requirements for merchant-routing choice.

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“A lot of merchants are very unhappy that they’ve got equipment ready to go but can’t use it because they can’t get it certified,” said Duncan. He estimated close to 40% of merchant terminals are ready for EMV cards, a figure significantly higher than other estimates. The Strawhecker Group, an Omaha, Neb.-based acquiring consulting firm, last week released a study indicating only 27% of all merchants will be ready for EMV by Oct. 1. On Tuesday, the firm issued a breakdown by merchant type, showing the highest readiness among shoe stores, at 69%, followed by department stores, 59%.

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By Thursday, merchants must be capable of accepting EMV chip cards or bear the risk of counterfeit (and, in some cases, lost-and-stolen) card fraud, according to rules set by the card networks.

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Aside from the certification snarl, Duncan and Garner also denounced banks and the card networks for pushing a form of EMV for credit cards that requires only a signature rather than the much stronger PIN authentication. This is a familiar retailer argument, but the speakers Tuesday were especially passionate about it with the liability deadline just two days away.

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“The new chip cards are sort of a half-baked solution to the fraud problem,” charged Duncan, since the chip may protect against card counterfeiting but does nothing to prevent online fraud or fraud from lost or stolen cards. Added Garner: “If I lose my [EMV] card, anyone can pick that card up and still use it because we’re not PIN- or password-protecting it.” Encryption of card data would also help to protect consumers and merchants, but this is being left up to individual merchants, Duncan said.

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“We haven’t really heard a good reason” why banks are mostly issuing EMV credit cards with signature rather than PIN authentication, Duncan said. He and Garner both speculated that one reason could be that, on debit cards, issuers have historically earned higher interchange income on signature transactions, though this distinction no longer applies for the nation’s largest banks since the Durbin Amendment’s pricing caps went into effect four years ago. “The decision to deploy PINs in the U.S. is not a security decision, it’s a business decision,” said Garner.

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Where PINs have been deployed with EMV, U.S. banks have used so-called online PINs, where authentication is handled at a remote host rather than at the terminal. Researchers have found that relatively few banks have tried this because their third-party processors aren’t yet equipped to handle credit card PINs.

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Garner and Duncan are especially disturbed that retailers are, in their view, spending billions to fix a card-payments service that was created by banks. “We didn’t invent credit cards, yet [the banks and their networks] are asking us to spend tens of billions of dollars to fix their system, and they’re not matching that,” charged Duncan. “It costs us a lot more to install the equipment than it does to issue cards.”

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Some incentives to merchants from the financial-services industry would help, Duncan added. ”Here, it’s been all stick and no carrots,” he said.