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Will an EMV liability cloud threaten the value of your ATM portfolio?

Small IADs are absolutely right to question whether they can afford to implement EMV. But they should also ask themselves whether they can afford not to.

February 20, 2015

by Jack Milford Ford

Recently, I've read several articles that I believe may potentially have an impact on medium size to small IADs and ISOs.

One was ATMIA's recently published 2014 ATM Channel EMV Readiness report. Some interesting data can be mined from this survey. Of the respondents, 59 percent, or approximately 70, were IADs.

Firstly, almost all of the IADs who have ATM portfolios of fewer than 500 ATMs (the survey referred to them as "fleets" not portfolios) under management — either merchant-owned, off-site owner-owned, or IAD-owned — have not done a hardware and software audit of their portfolios to determine their needs for EMV migration.

Secondly, at the same time, a very high percentage of the IAD respondents were concerned — with a majority of them "very concerned" — about the liability shift on ATM operators and its potential financial impact (I would suggest they should be most concerned about the impact caused by the shift in financial liability for noncompliance).

And lastly, just under 50 percent of the IADs who have ATM portfolios of fewer than 500 ATMs have yet to contact ATM vendors about planning EMV migration for their ATM portfolio.

The survey provides very interesting additional data with regard to all the necessary steps required of an IAD to prepare for and implement the EMV migration in order to be ready for the liability shift occurring toward the end of 2016 for the ATM arena. However, what is significant is the conclusion of the survey that approximately 20 percent of the IAD respondents (I am assuming the core of this group would have portfolios of 500 ATMs or fewer that they own or manage) have done nothing to date to initiate a migration plan.

Another article made reference to the increasing costs in 2015 for an IAD to operate and grow its business due to a number of factors — cost of EMV migration being one, but not the only one. I have heard similar statements in conference calls, conversations with players within the ATM industry and the content of many other articles. These costs and potential liability risks raise the possibility of a consolidation of ATM independent operators by IADs reviewing and considering an exit strategy.

For such IADs, a key question they need to ask themselves is what will my portfolio or fleet valuation be? An even more significant question they need to ask themselves is what will happen to this valuation after due diligence is concluded, when an audit is completed regarding the portfolio's federal and state regulatory compliance, network rules compliance, and, specifically, EMV chip card compliance?

My guess is that :

• for those 50 percent of the IADs (again, those who have ATM portfolios of less than 500 ATMs) that have yet to contact ATM vendors for planning EMV migration for their ATM portfolio;
• or those 20 percent of the IAD respondents (who have ATM portfolios of less than 500 ATMs) that have done nothing to date to initiate a migration plan;
• in all probability, if their ATM processing contracts with processors, sponsoring banks, merchants, offsite owners, & placement merchants are not in order concerning Network Rules re EMV;
• and the ATMs, however owned, are not EMV hardware and software -implemented, -tested, and -certified;
• a prospective buyer of such a portfolio will more than likely give that portfolio's valuation a substantial haircut. How substantial depends on what mitigation of risk steps are being taken or will be taken going forward.

There is no question that substantial costs will be incurred to plan for, initiate and implement an EMV migration plan by or before October 2016. If you are a small IAD, you are absolutely right to question whether you can afford to do it. I just suggest though, that you also consider the future and question whether you can afford not to, recognizing that you are the only one who can make the correct decision for your business.

A member of the Oregon State Bar for nearly 40 years, Jack Milford Ford has held various corporate positions in public and private firms. He also has been a managing partner in a law firm and Senior Assistant Attorney General for the State of Oregon. Today, Jack is solepractitioner in the JMFord Law Office, where his primary focus is providing counseling and legal services to the electronic payment transaction industry. He and is a member of the ATM Industry Association and the National ATM Council.

This article was republished from the Triton blog, atmAToM, with kind permission from Triton.

photo courtesy diana robinson | flickr

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