Five Month Health Check on EMV

Five months in, and the EMV rollout has gotten off to a relatively rocky start. Many of the smaller and mid-size financial institutions we’ve spoken to have yet to finish transitioning over to chip cards, and anyone with a chip card can vouch for the fact that most merchants aren’t yet accepting them. A fair number of EMV terminals have tape or notes over top of the slot used to dip cards, and we’re hearing from several financial institutions that card fraud is at painfully high levels. What’s happening? We dig in below..

EMV Penetration at Merchants

A study released by The Strawhecker Group on February 17th found that only 37% of merchants were EMV compliant. A previous study, completed in the fall, estimated that over 40% would have been EMV ready by that time.

Why the delay?

There are a number of reasons, and most of them are unique to smaller merchants. A large number of smaller merchants employ mobile POS systems (mPOS), but few of those solutions have been upgraded to be EMV, due to the more complicated transfer of data streams and the expertise needed to build something with those capabilities.

As noted in Mobile Payments Today, even after a tool is developed, the software vendor must then get it certified by both the acquirer/processor as well as the card networks. These certifications can take weeks or even months, and often cost anywhere from $10,000 to $100,000.

Perhaps the most difficult piece for merchants to swallow however, is that there has been a substantial delay in getting the coveted EMV certification. Due to the influx of requests, acquirers have been forced to prioritize them, leaving smaller businesses waiting in the wings while tier 1 merchants were pushed through.

Merchant Lawsuit

While this delay in getting certified was anticipated by many, it has resulted in many smaller merchants being left with substantial fraud chargebacks and fines. In the case of two businesses in Florida, these hefty financial losses led them to file a lawsuit against seven card networks and ten banks. They are alleging that the delay in getting their EMV technology certified has led to exorbitantly high levels of chargebacks from October 1st to February 15th. During this period last year, the two merchants combined saw four chargebacks; while, this year they saw 88, adding up to nearly $10,000 in losses between the two businesses.

They are seeking restitution for the charges incurred, specifically noting that they feel they are being “overcharged” for fraud, since interchange fees (which they still need to pay) are already intended to cover fraud.

Fraud Not Slowing Down

Meanwhile, amidst all of the confusion on chip cards and the EMV conversion, fraudsters are continuing to cash out. Issuers not wanting to re-issue current at-risk cards due to chip cards coming soon, paired with hundreds of active compromises, and non-EMV compliant merchants (small retailers, gas stations, ATMs) with targets on their backs has led to a perfect storm for fraudsters. At best, only 75% of merchants are expected to be EMV compliant by the end of the year. Gas stations have until 2017. So do some ATMs. And customers aren’t going to care about who is responsible for footing the fraud bill - all they’re going to care about is that they’re still seeing fraudulent spend on their accounts. Check out how Rippleshot can help you reduce the cardholder impact from an unpredictable payment security ecosystem below:

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