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Don't Delay...No Delay

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By Laura Townsend, SVP, Merchant Advisory Group

December 3, 2019

Some in the industry believe that, despite the postponement already granted to the AFD, another delay is likely.  However, that will absolutely not be the case.  

As another year comes to an end, retailers are heads down on the holiday shopping season, competing fiercely to attract and retain customers and drive towards their annual profit goals, while making sure their people and systems can handle the high transaction volumes during this peak period.  Complicating matters is the increasing risk of losses due to ever increasing payment fraud.

The movement to chip cards has helped reduced payment fraud across the brick and mortar retail verticals. While the rest of the retail industry has migrated to chip payments technology at the point of sale, retail fuel is still working aggressively towards EMV acceptance outdoors at the Automated Fuel Dispenser (AFD).  A liability shift date announced by all the global payment networks takes effect in October of 2020.  Starting next October, losses due to counterfeit fraud transactions at the AFD that are currently being absorbed by financial institutions will be charged back to merchants that have not implemented chip technology at the AFD.  The global networks previously acknowledged the AFD market required more time, providing AFDs a three-year delay from the original liability shift activation date of October 2017, which was two years after the rest of the retail community was subject to the same chip liability shift.

Some in the industry believe that despite the postponement already granted to AFD merchants, another delay is likely.  Unfortunately, that will absolutely not be the case though.  At the Merchant Advisory Group (MAG), our role is to advocate on behalf of our merchant members with regards to issues and challenges in the payments industry in order to achieve a better and more balanced outcome for the merchant and its customers.  MAG formally requested another delay of two years in light of significant challenges that still remain for AFDs to achieve full chip deployment by October 2020.  The requested delay of two years was intended to ensure readiness across the majority versus minority of the market.  In response, both Visa and Mastercard have formally stated in writing that they remain committed to the October 2020 Liability Shift activation date for AFD transactions.

In light of the current state, the call to action is collective alignment among all stakeholders to drive chip enablement even more aggressively in order to prepare merchant readiness by October 2020. 

AFDs that have not migrated will be at risk of sharing the $450 million in counterfeit fraud projected to hit the industry in 2020. 

We recommend two areas of focus for the industry:

  1. Merchant education and action.  Counterfeit fraud is increasing at 23% per year and is expected to reach $450 million in 2020 at the AFD. (1)  Thirteen percent of fuel islands are fully chip deployed (2) as of June 2019, and 10% of transactions at AFDs are already chip on chip (3).  Both of these figures suggest the competition is moving.  However, 20% of retail fuel merchants that do not yet have any sites deployed with outside EMV have either no intention to implement chip or remain undecided.  Payment card fraud is a $20 billion per year organized criminal activity, and time and time again, counterfeit fraud has migrated to the path of least resistance and the least secure retail locations.  What does that mean to those undecided or consciously choosing not to deploy chip technology at the AFD?  Those AFDs that have not migrated will be at risk of sharing the $450 million in counterfeit fraud projected to hit the industry in 2020.  This will likely happen even if historically those AFDs have never experienced such counterfeit fraud losses.  The bottom line is that the fraudsters will likely find you. Either plan for chip migration or incremental fraud losses in 2020.  Planning your migration now is your best bet to avoid risk of financial losses. 
  2. Supplier Readiness.  For those merchants who plan to deploy chip at the AFD, there are some significant obstacles that they need to overcome in order to ensure timely deployment plans can be achieved.
    • Software. (2) Over half of AFDs will not be EMV ready by October 2020, with 40% due to the lack of software availability.  Most major oils and fuel distributors have influence on their retail sites with regards to AFD capabilities; however, zero major oils or fuel distributors have outdoor EMV solutions ready and available for all the vendors they support.  Many are still waiting on hardware and/or software.  For retailers that own and operate fuel sites not currently deployed with EMV at the AFD, over 40% are waiting on software. The top challenge cited by retail fuel merchants not 100% EMV ready was lack of available software (52%). 
    • Chip Certification.  Most of the global payment networks have announced support for a streamlined certification process that should reduce the dependencies in the end-to-end certification process to shorten a solution’s time to market (4). Over time, the networks have reduced the number of test cases required while maintaining the quality of the certification. Yet it is not clear which solution providers - including acquirer processors - will be prepared to support a self-certification program in the event a merchant chooses to leverage that program for faster certification and ultimate deployment by October 2020.  It is important that service providers support these streamlined certification processes to help advance chip migration for the merchant community.
    • Certified technicians.There is an evident limitation on certified technician capacity required to support the demand the U.S. migration to EMV.  For example, leveraging all available certified technicians available to a large chain with 700 Florida locations, one merchant is only able to convert eight locations per week. Another New York fuel merchant has communicated that technicians are eight to 12 weeks out as they don’t have capacity to focus on anything but the larger fuel retailers.  A recent study among installers of petroleum equipment suggests that the shortage of skilled technicians is the number one disappointment of the year. Although these installers do expect a number of their customers to be fully EMV-compliant by October 2020, almost half will not be compliant.  This number is higher than anticipated as of last year’s study.  The shortage of qualified technicians was easily the biggest business threat cited in the study ranked eight of 10 on a scale of one (not a threat at all) to 10 (major threat).  

The payment networks have made it clear that they are not moving the deadline, and the resultant spike in chargebacks starting next October may drive some retailers out of business. 

The call to action is for merchants to acknowledge the time is now to plan for chip migration in order to minimize risk of counterfeit fraud losses.  The additional call to action is to ensure those merchants with plans to deploy chip technology are able to do so with software readiness, sufficient support for the necessary chip certification processes, and accessible, qualified and certified technicians in order to deliver on those chip migration timelines.

If merchants are expected to assume liability for counterfeit fraud by October 2020, the industry should be ready to support that migration in time.  Unfortunately, the industry is clearly not prepared to do so and immediate action by all stakeholders must be taken to accelerate preparedness and mitigate risk to the merchant of fraud losses as soon as possible.

  1. Conexxus Webinar "EMV: Can you afford NOT to Upgrade" from NACS 2019 Show

     https://www.conexxus.org/webinars/emv-can-you-afford-not-upgrade-nacs-2019-show

  2. Conexxus EMV Preparedness Survey for the U.S. Convenience and Retail Fueling Industry https://www.conexxus.org/sites/default/files/2019_Conexxus_EMV_Survey.pdf
  3. Visa and Mastercard statements, November 2019
  4. White Paper “Options for Reducing Level 3 EMV Certification Time for Retailer Systems using Electronic Payment Servers (EPS)” https://www.uspaymentsforum.org/wp-content/uploads/2019/10/EPS-EMV-L3-Certification-FINAL-Oct-2019.pdf