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EMV in the US: Where is the incentive for IADs?

July 22, 2012 by Thomas Hailey — Director of Business Development, CORD Financial Services

As Europe, Canada, Asia-Pacific and other world regions continue to make progress in the battle against card fraud, pressure on the U.S. to migrate to the chip-based standard is growing. Aite Group reports that card fraud costs the U.S. card payments industry an estimated $8.6 billion per year. According to The Nilson Report, that figure is expected to reach $10 billion by 2015.

Many believe the U.S. will see an even greater increase in fraud costs as EMV is fully implemented in other regions of the world. In a recent survey, 60 percent of ATMIA Fraud Report respondents claim the costs to the ATM business arising from ATM fraud are increasing.

Undoubtedly, these numbers reveal a great threat in the battle against credit card fraud in the U.S., and eventually the amount of fraud will outweigh the cost to upgrade equipment and maintain EMV compliance. It is my belief that when this happens IADs will lose the last substantial argument for holding out on EMV implementation.

However, with mag stripe cards still accepted worldwide, a lack of regulatory, directives and varying EMV road maps from Master Card, Visa and American Express, it’s a waiting game to see when the hammer will fall to mandate EMV in the U.S.

EMV impact on IADs and merchants

Independent ATM deployers and merchants, who may bear the brunt of the verdict, strive to provide secure customer transactions, but at what cost? The lack of understanding in regard to EMV costs and the road maps put forth by Visa, Master Card and American Express do not help IADs prepare for implementation, but only seem to heighten anxiety about regulated industry changes.

With an industry not ready to take on EMV, how do we cope with the belief that EMV is ultimately beneficial for the industry and the consumer, but comes at a great expense to ATM deployers and merchants? Having just reached the ADA deadline this year and now battling lawsuits for outstanding upgrades, how much more can IADs handle?

Independent ATM deployers and merchants are facing three main sources of cost if EMV is enforced:

1. The first cost is the capital needed to upgrade ATM and POS equipment for every terminal nationwide. Aite reports that upgrading to the new hardware is expected to cost ATM owners between $2,000 and $4,000 per machine. Hopefully, the retail equipment manufacturers will be able to bring that estimated cost down as they did with ADA. It seems that most retail manufactures already provide EMV support in other countries.
2. Card issuers are announcing a shift of liability to acquirers while all indicators show that processors will not be ready for EMV until early 2013 at the earliest. Thus, IADs and merchants are put in the position of deciding whether to process cards using EMV or chance the liability of fraud losses.
3. Similarly to the case with ADA, IADs could eventually face fines for failing to comply to EMV standards in time [should regulatory measures be imposed in the U.S]. Most recently, Canada's attempt to implement EMV resulted in many missed deadlines and subsequent fines.

Until clear EMV specifications and costs are outlined, IADs should not take on either the expense nor the liability of implementation. Couple that with potential non-compliance fines and it seems the cards are stacked against IADs and merchants who may take the largest hit from EMV implementation both financially and in terms of the leg work required to convert equipment.

Where is the incentive for IADs to begin down the path of EMV implementation and how can we be successful once industry regulations are enforced? Is the U.S. EMV movement at a point where IADs should have a plan of execution in place so that when it's time to implement changes they can be made swiftly? 

— Authored by Andrea Osgood

 For more information on this topic, visit the EMV research center.

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