October 5, 2015
In my previous post Are You EMV-Ready, I talked about the implications EMV Liability Shift would bring to certain groups – merchants, consumers and issuers - in the payment ecosystem. The liability switch date October 1st came and went. How have these groups done?
Widely expected by the industry, EMV switch will face the most daunting challenges with merchants. Oops, looks like the wake-up call is yet to sound off. According to Visa, for the 6 to 8 million merchants in U.S., there are approximately 300,000 merchants – about 5% - are EMV ready. This is remarkably on target with my qualitative research. I visited 30 merchants in a typical neighborhood and concluded with this tally:
- 2 stores are EMV ready.
- 26 stores are not ready.
- 2 stores only take cash.
The biggest battle remains with small merchants. Out of the 26 stores that are not ready, the majority is small businesses and do not know what EMV migration is all about. One small shop just opened business a year ago and started to accept inserting chip cards when their card machine was first installed. Only 0.3% new businesses open each year; this certainly is not a momentum one can count on to migrate small businesses to be EMV ready.
Besides small merchants, surprisingly, stores like Whole Foods and Dunkin Donuts do not have EMV terminals either. Their store managers told me they heard about it, but the system was yet to be updated.
Recounted by many industry veterans, EMV implementation was certainly not a smooth sailing in other countries in the past. Especially for small medium merchants, the transition will take longer to five years even on the optimistic note. During this transition, for companies serving small businesses, work has just begun and there are huge opportunities to educate, engage and partner with the right players.
To be fair, smart cards, or chip cards, have reached millions of consumers. Visa alone has issued 142 million chip cards that have slowly gained awareness. At Duane Reade, a New York-based convenient store, customers began to be asked to dip their smart cards instead of swiping. According to my short qualitative survey to thirty average consumers, when asked if they know what chips do, most of them only can say sort of at best. But since the change is forced at terminals and with assistance of trained associates, consumers simply can go along.
For issuers, the story is told in twofold. Major issuers have been gearing up for chip card issuance and have delivered them in time. However, there are 10,000 financial institutions offering credit, debit and store co-brand cards. And debit and store co-brand are lagging in migration. The process of chip card issuance is complex and arduous. The processor and the network are the first resources to consult if issuers have yet to put the conversion on agenda. There are also payment technology companies that can assist you in project scoping, project management and implementation. Issuers should plan 4 to 6 months, even longer depending on the complexity of card programs, to tackle the implementation.
When issuing EMV cards, communication strategy seems to be missing. 80% of my surveyors had no idea why they received the new cards until they were told to dip their cards. My own three cards (all from major issuers) had no mention about the chip at delivery. If you already spend $2 to $4 each card to add a chip -not to mention all the organization resources - an inserted message, a letter or a dedicated email about why and what is next will serve customers and issuers well. After all, security consistently ranks high (along with rewards) as the usage preference factor. Well-timed and targeted communication aligns squarely with the message banks always strive to achieve we have you covered.
In addition, with select segments of cardholders, issuers may consider dual interface chip cards. As mobile payments gain traction, issuers may seize this opportunity to get learning on how contactless feature enhances loyalty and usage. With Apple Pay and Samsung Pay unveiled, more and more consumers have started to learn about tap and go and mobile payments. Being able to offer faster transactions for small ticket transactions is one of the enhance benefits credit cards can offer.
All that said, EMV migration is a long process. U.S. market has made great strides since last year with only less than 3% EMV adoption. For the next five to seven years, opportunities await for the organizations that are patient and methodical when executing EMV strategy to achieve the security pillar.
Sources: Let’s Talk Payments, U.S. Small Business Administration Report, Visa.