As the U.S. payments industry approaches the one-year anniversary of the Oct. 1, 2015, EMV (Europay, Mastercard and Visa) liability shift, a majority of card-accepting merchants have not implemented chip card technology. This is according to a study issued Sept. 20, 2016, by The Strawhecker Group, a payments industry consultancy. TSG researchers based their findings on 79 payment service providers responsible for more than 3.4 million merchants. This represents nearly half of the U.S. merchant services market.
A large number of EMV terminals have been deployed but not activated, and approximately 71 percent of merchants who remain noncompliant have seen a sharp uptick in chargebacks, the study noted. "After the October 2015 liability shift, U.S. card-accepting merchants without the ability to accept EMV cards may be liable for fraudulent transactions," TSG stated.
Payments analysts observed the report's statistics are at odds with TSG's more bullish January 2016 predictions, which forecasted a 50 percent adoption rate by October 2016. TSG adjusted its expectations, pushing the date forward and the percentage of compliant merchants upward slightly: 51 percent compliance across all U.S. merchant segments by December 2016.
Some analysts attribute the slowdown in adoption to expensive and time-consuming certifications by device manufacturers, processors and payment gateways. Others cite a lack of education among small and midsize merchants, many of whom are not fully aware of the benefits associated with smart cards and the potential consequences of failing to implement the technology.
Jared Drieling, Business Intelligence Manager at TSG, observed that the quick service restaurant category has been particularly slow to implement chip card technology. "EMV merchant adoption has slowed down a bit, at least comparatively speaking to our last EMV survey results in January 2016," he said. "EMV terminal vendor supply and delays in the terminal activation/certification process are the bottlenecks in the migration."
Drieling expects the increase in chargebacks combined with a plethora of market-ready, certified EMV card reading devices and peripherals will spur EMV adoption. "It is clear that non-EMV compliant merchants have felt the impact of the liability shift," he stated. "The good news is that as merchants refresh their terminals for EMV, they are also adopting the contactless capability which lays down the foundation for future payments such as mobile proximity payments."
An infographic capturing TSG's survey highlights includes commentary from payment service providers, who alternately call the EMV payments landscape "a nightmare" and "a mess." A copy of the infographic is available at http://bit.ly/EMV-Anniversary.
Despite the grumbling, consumers and merchants are acclimating to behavioral changes at the POS, including the additional wait times for chip card authentication, analysts noted. An Aug. 5, 2016, article by New York Times reporter Karen Workman titled "Confused by Chip Cards? Get in Line," expressed cautious optimism. In the article, Workman shared perspectives from TSG's Drieling and Electronic Transactions Association Chief Executive Officer Jason Oxman.
"We're really one of the last G20 nations to adopt EMV," Drieling said. The chip cards work differently in the 150 other countries using them, where cardholders enter PINs at payment terminals, which lets the verification process happen offline, Oxman noted. The United States opted for using signatures with chip cards at the POS instead of PINs, a decision that has stirred controversy among a significant number of people who feel that using PINs with chip cards instead of signatures provides superior security.
Workman also noted that many chip-enabled terminals have built-in near field communication readers designed to accept contactless payments used in mobile wallet schemes such as Apple Pay and Android Pay. She believes mobile payments may eventually replace contact cards at the POS. Drieling agreed, stating, "There is a perfect storm brewing for mobile wallets."
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