Article
The daunting logistics of US EMV
A look at the numbers says that operators should make plans for EMV migration sooner rather than later.
July 9, 2013
by Daryl Cornell, CEO, Triton Systems
Though some in the ATM industry believe that EMV will never happen in the U.S., consider that more than 10 million POS devices will have been upgraded before attention shifts to ATMs and ultimately to the millions of gas pumps.
Risk-averse financial institutions are already making plans for an ATM EMV upgrade, making it unlikely that white label ATMs will receive special dispensation based on undue hardship.
Make no mistake; there will be hardship. But while analysis to date has focused on the capital cost of EMV upgrade, it can be argued that it is the logistics of U.S. EMV upgrade that will represent the more problematic challenge.
Assuming no further delays in liability shift, the current U.S. EMV Implementation timeline is 2016/2017. Taking the later date, ISOs now have roughly four years until full liability shift occurs. Many will elect to roll the dice post-liability shift, hoping that any breaches and subsequent fraud originating at their ATMs will be small.
However, as we saw in Canada, processors may simply decide to turn off large swaths of high risk, non-EMV ATMs, rather than take the risk of chasing shallow-pocketed ISOs for fraud claims.
Turning to the logistics of U.S. EMV upgrade, let's look at the numbers. Estimates are that there are currently nearly 300,000 retail ATMs operating in the U.S.. According to recent data from Canada, a market where EMV conversion was completed at the end of 2012, retail ATM EMV conversion occurred roughly as follows:
- 45 percent of terminals were upgraded for EMV through conversion kits, with upgrades performed by field technicians;
- 50 percent of terminals were replaced, with ISOs trading in older gear for credit towards new ATMs; and
- 5 percent of terminals were retired, as sites were culled or contracts not renewed.
If we use these same percentages in the U.S., retail ATM EMV conversion will look like this:
- 135,000 ATMs will be upgraded via kits installed by field technicians;
- 150,000 new ATMs will be purchased and installed;
- The 150,000 ATMs being replaced will be returned to manufacturers as trade-ins; and
- 15,000 ATMs will be retired as uneconomical.
Fortunately, many ISOs have already begun purchasing new ATMs which are "EMV Ready," fixing or even slightly reducing the EMV conversion pool at currently installed base levels. Assuming a single site visit for upgrade or install/de-install, approximately 285,000 site visits will be needed to complete U.S. EMV conversion. Note that for the most part these are incremental site visits, over and above routine maintenance requirements.
If all ISOs began EMV conversion tomorrow, OEM and field service requirements would require:
- 6,000 monthly site visits for upgrades/replacements;
- 3,125 new ATM purchases each month; and
- 2,812 monthly upgrade kits.
In-house and third-party technicians could likely handle this level of additional work by adding and training field service personnel. Current retail ATM manufacturing capacity is approximately 2,500 units and could be increased to handle the 25 percent increase in market demand. Upgrade kits are normally built to order and could also be produced to match market requirements.
The reality is that few, if any, ISOs plan to begin EMV upgrade programs this year. Many cite the continued uncertainty surrounding the process and the heavy capital requirements. Both of these are valid concerns which will likely delay ISO EMV implementation for at least another year.
Assuming all ISOs begin EMV conversion a year from now, OEM and field service requirements jump to:
- 8,000 monthly site visits;
- 4,167 new ATM purchases each month; and
- 3,760 monthly upgrade kits.
Industry delay until Q3 of 2015, a full two years before liability shift, would require:
- 12,000 monthly site visits;
- 6,250 new ATMs each month; and
- 5,625 monthly upgrade kits.
Given the magnitude of these projections, there simply may be no way for the industry to hire and train enough field technicians on a temporary basis to complete the U.S. EMV upgrade in 24 to 36 months.
Manufacturers may be reluctant to speculatively employ the working capital needed to triple production capacity to meet temporary EMV demand, particularly when post-EMV hardware demand will almost certainly plummet to new historical lows.
Unlike EMV migration in Canada, Mexico and the U.K., EMV conversion in the U.S. is not being mandated by a regulatory body. The use of liability shift alone as a motivator virtually guarantees that a majority of ISOs will delay EMV conversion plans.
By the time non-EMV terminals are turned off by processors or six-figure liability claims are publicized, it may be too late to marshal the resources needed to make the transition to EMV in a timely manner.
The bottom line: The logistics involved in U.S. retail ATM EMV upgrade will be complex. Planning, which should include conversations with third-party field service and hardware suppliers, cannot begin soon enough.
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This article has been republished
from the Triton blog, atmAToM,
with kind permission from Triton.
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