Though there are no plans yet for the U.S. to adopt EMV chip-and-PIN technology, U.S. merchants are not all in the same boat in terms of their readiness to adopt EMV technology, observers say.
Many large U.S. merchants’ terminals already comply with the international EMV standard for chip-based payment card transactions that provides some security advantages over signature-based magnetic stripe cards.
Uncertain is the state of smaller merchants and their readiness to accept to chip-based payment cards.
The vast majority of terminals used by small and midsize U.S. merchants are not immediately adaptable to the EMV technology, which would create certain urgent pressures and opportunities for merchants and terminal makers if the U.S. were to adopt EMV technology, one analyst says.
Also unclear is how new terminals would reach merchants and who would pay for them. ISOs and sales agents could help get these terminals to merchants, but that is conjecture at this point.
“If the U.S. were ever to adopt EMV, adoption would be fairly broad and rapid,” Gil Luria, a vice president of equity research at Los Angeles-based Wedbush Securities, tells ISO&Agent Weekly.
For example, Wal-Mart Stores Inc. five years ago began to install EMV-compliant payment-terminal hardware in all of its U.S. stores, Jamie Henry, Wal-Mart director of payment services, tells ISO&Agent Weekly. Although the company would need to invest in additional software and information-technology changes to accept EMV cards throughout its stores, “it would not be an insurmountable cost; … we’ve done it already in Mexico, Canada and the UK,” Henry says.
A national migration to EMV would mean small merchants would have to scramble quickly to catch up to large merchants in installing a base of EMV-ready terminals, while merchants of all sizes would have to make software and back-office changes to support the payment technology, Luria says.
“EMV adoption in the U.S. would be a big opportunity for terminal manufacturers and would require a pretty big effort from merchants,” he says. “It would probably take about three to five years.”
The largest U.S. retailers’ terminals are already EMV-compliant because in recent years many have installed hardware similar to the EMV-ready equipment international merchants use, Luria notes.
Talk about the U.S. potentially joining the rest of the world’s major nations in migrating to EMV continues to percolate this year.
Richard Oliver, an executive vice president with the Federal Reserve Bank of Atlanta’s Retail Payments Forum, has chaired three separate meetings this year with payments-industry groups to discuss the future of U.S. payments, including whether adopting the EMV standard could eventually become a necessity.
Discussion has centered on the fact that as surrounding nations migrate to EMV technology, potential security gaps are emerging. The dichotomy in technologies also is causing point-of-sale acceptance problems for U.S. travelers using their mag-stripe cards abroad.
Canada’s card issuers, merchants and acquirers next month must comply with the EMV standard or risk absorbing the cost of card fraud that EMV technology could have prevented. Some 70% of Canada’s payment cards are EMV-based, and more than half of merchants and most acquirers are EMV-compliant, according to Canadian payments industry observers.
Douglas G. Bergeron, CEO of San Jose, Calif.-based VeriFone Systems Inc., last month told analysts during a conference call discussing the company’s fiscal third-quarter earnings the “noise level” around the U.S. someday migrating to EMV rose sharply this year, possibly in response to the growth of new mobile-payment technologies.
“Clearly the vast majority of the U.S. payment infrastructure is not chip-and-PIN-ready,” Bergeron said. “It would require (a) several billion-dollar retrofit, and ... I couldn’t help but get a little bit giddy over that prospect.”
Scottsdale, Ariz.-based terminal maker Hypercom Corp. shares that view. “If EMV were mandated in the US, it would represent a significant opportunity for Hypercom to support an EMV upgrade of the POS terminal installed base,” Will Rossiter, Hypercom vice president of global marketing, tells ISO&Agent Weekly.
Most small to midsize U.S. merchants’ payment terminals are based on mag-stripe technology and would require upgrades to accept EMV cards, says Christopher Justice, president of North America operations at terminal maker Ingenico S.A. And migrating to EMV “would require a major retrofit of the existing retailer-to-acquirer-to-processor infrastructure,” Justice notes.
If the U.S. were to shift to EMV, it also would simplify terminal manufacturers’ options.
“The good news is that 60% of our business is now in chip-and-PIN countries, which is basically everywhere in the world but India and Israel and a few places,” Bergeron told analysts. “So we already have the technology, and we’re just ready to press the go button when the industry says it’s time.”
