The one thing payment terminal hardware makers should have been sure of this year was relatively strong demand from merchants finally upgrading to EMV-compatible equipment after the slow start last year to the U.S. chip-card migration.
But that’s not how it’s turning out, as Verifone and Ingenico recently revised sales forecasts downward for the year, pinning the blame in large part on the card networks’ moves this summer to
Verifone on Sept. 1
“Looking at our sales this year, we saw the biggest downward effect from Visa’s liability-shift rollback, which we think lessened demand and urgency from merchants to upgrade payment terminals to EMV,” said Jennifer Miles, Verifone’s president for North America.
Ingenico this week put forth a similar narrative. “This market decline has been caused by a relaxation in the (U.S.) EMV rules,” the Paris-based company said in a Sept. 6
Despite its recent revised outlook for near-term payment terminal sales, Verifone said in the long term the company expects to see steady demand from retail sectors that are less affected by counterfeit card fraud and put off EMV upgrades for other reasons.
“There’s a subset of smaller merchants that tend to have lower chargebacks—medical offices, spas, salons and companies providing repeat services—that are waiting to implement EMV when they can add more functionality, like mobile payments and loyalty,” Miles said. “Quite a few companies fit this model, and they tell us they’ll be upgrading to EMV in the next year or so.”
While many factors usually affect terminal demand, the card networks' elimination of a key incentive for merchants to move quicker to adopt EMV certainly could be a cause for slower sales, said Rick Oglesby, a consultant with Double Diamond Group.
"By reducing the incentives, the card networks reduced demand," Oglesby said. "They postponed it."
But some payments industry experts don’t buy the notion that the card networks’ adjustment of liability-shift timing for smaller transactions threw off the broad arc of payment terminal sales.
Visa first notified merchants of the coming liability shift five years ago, in August 2011, and merchants typically plan equipment purchases well in advance, said Randy Vanderhoof, director of the U.S. Payments Forum, a cross-industry group that provides EMV guidance to merchants and issuers.
“It seems unlikely that the changes to chargeback rules are impacting hardware sales," Vanderhoof argued. "Many if not most of the (affected) merchants already have the hardware in place, and are just waiting to turn them on when they achieve certification."
More than half of large merchants have completed the upgrade to chip cards,
A more precise explanation for the hiccup in sales forecasts could be that terminal manufacturers failed to recognize that certain retail niches, such as small specialty merchants and quick-service restaurants (QSRs), were on a much slower track to upgrade to EMV than larger merchants that began the EMV transition months in advance, said Rodman Reef, a Larchmont, N.Y.-based payments consultant.
For example, QSRs that have a high proportion of debit transactions daily were among the last of all retail sectors to begin their EMV conversions because industry debit routing specifications weren’t available until April of 2015, Reef explained.
“Many QSRs didn’t want to start their conversion until they received the debit routing specs…and I suspect the terminal makers’ forecasting teams didn’t take these facts into account,” Reef said.
Despite the sales slowdown during the second half of this year, terminal makers see stronger sales ahead as hardware demand evens out.
Ingenico said it sees promising terminal sales in Asia Pacific and in Europe, and plans to hit its original targets for selling EMV-ready terminals to U.S. merchants. “The relaxation of the (liability shift) rules is temporary, and Ingenico Group remains confident in the continued rollout of EMV in the U.S., which should continue to progress in 2017 and beyond,” the company said.
Visa in June said that beginning in July 2016 merchants would be absolved of liability for fraud on smaller transactions; Amex also in June said merchants would get a break on liability for fraudulent transactions beginning at the end of August 2016.
Mastercard in June said it will henceforth use new
“Mastercard did not adopt chargeback reduction practices similar to Visa and Amex because, quite frankly, we’re not seeing many chargebacks at that level (of smaller transactions),” a Mastercard spokeswoman said.
By contrast, American Express said 40% of its counterfeit card fraud chargebacks in the U.S. are for transactions under $25.
One theme that keeps surfacing during the often-rocky U.S. EMV migration is the fact that many people have underestimated how long it will take such a large and diverse market to make a full transition, Reef noted.
“It took the U.K. and other countries at least five years to reach the point where 90% of all transactions were chip cards at chip-enabled terminals, and there is no reason to believe the U.S. will go any faster, given its size and complexity,” Reef said.
