Most Merchants Unprepared For Today’s Credit Card Liability Shift

From the survey numbers on how many merchants are ready to accept credit cards with EMV chips in them, you might think this is a new development spring on retailers, instead of an effort that has been in the works for years and postponed several times.

Starting Oct. 1,  credit card companies will no longer take the liability for any fraud — if the fraud occurred because a merchant didn’t use EMV when it was available on the card, the merchant eats the cost.

The rollout of EMV, which stands for the major credit card issuers — Europay, MasterCard and Visa — is not entirely smooth; nearly two-third of consumers haven’t received an EMV card yet, and 30 to 40 percent of merchants aren’t aware of the deadline.

In addition, the cards are used differently from swipe cards. Consumers have to wait until the sale is tallied and then insert the card into the reader, where it communicates with the card company and trigger an authorization. Or not, as the case might be. In any event, it is a little slower than a quick swipe and consumers will have to be educated in how it works.

Contrary to some news reports, the chip cards won’t require a PIN code in most cases. The card companies decided to go with chip and signature out of fear that a PIN requirement might relegate their card to back of wallet.

Payment experts think that PINs, widely used with credit around the rest of the world, will be adopted eventually, although the rise of paying through mobile phones with a thumb print for authentication, may push aside the need for PINs.

At the Chicago Fed’s Payment Symposium last week, one participant said he’d talked to a merchant who was going to skip EMV during the holidays because it was too slow. Some payment terminals will not allow a merchant to swipe a chip card but all terminals accept the magnetic swipe for cards that don’t have chips.

As the POS payments become more secure, card companies are looking for an increase in card not present fraud —ecommerce by phone and internet where using fake or unauthorized cards to buy goods or gift cards is a popular end run around the improved protections at registers.

Aon, the insurer, says it can take up to six months for a merchant to prepare for EMV, including acquiring the necessary certifications as well as covering costs for purchasing, buying and installing the chip readers.

Retailers will need to continue to spend significant time and resources training their staffs on how to interact with consumers, educate them and attempt to build the habit of “dipping and waiting” warns Gemalto, a global player in cards and card readers.

Capital One’s survey found that: Only 32 percent of Millennials report being aware of the changing regulations around EMV, compared to 46 percent of total respondents …and of the 43 percent of respondents familiar with EMV, chip, or PIN-enabled credit cards, only 34 percent currently accept them as a form of payment

Ovum, the financial consultancy, couldn’t help sounding a big snarky when it reported that 30 percent of merchants had never heard of EMV, 5 million businesses aren’t ready for it, but “Despite this ignorance, 54% of merchants report that security is a top concern.”

The consultants don’t think merchants have much choice.

““Many merchants are reluctant to invest in EMV, but they need to understand it is an industry standard and there is no real alternative. Reluctance to invest today will only increase exposure to risk for a shift that will eventually have to be made anyway. Despite the growth of mobile, it’s still decades away from fully replacing cards.”

About Tom Groenfeldt

I write - mostly about finance and technology, sometimes about art, occasionally about politics and the intersection of politics and economics. My work appears on and and occasionally in The American Banker and Banking Technology in London.
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