EMV Update 1

Nearly 18 months after October 1, 2015 official implementation of EMV, a large percentage of merchants in the U.S. are still not using EMV-certified devices, the chip card readers. These merchants were using POS systems prior to implementation, or have invested in a POS system after that date with the hope, and sometimes promise by their POS vendors, that their POS system would be able to process chip cards shortly thereafter. Alas!

We are still sailing in the tumultuous waters of EMVgeddon©.*

A very small percentage of merchants could upgrade their POS system, but they have refused to pay the exorbitant cost associated with it. Many have resisted the upgrade because they do not have any or enough chargebacks to justify the switch. Nonetheless, they are exposed to liability because of the new and  wrong policy of 100% liability shift to merchants as of October 1, 2015 if their devices are not EMV certified. I say wrong because the implementation forced on merchants by Visa, MasterCard, American Express, Discover, China UnionPay, the five owners of EMVCo was and has been utterly flawed; it merely shifted the liability resulting in increased income to the sponsor and/or card-issuing banks. The four EMVCo members based in the U.S. make their revenue from each transaction no matter what. There was never any worries that they would be footing any bills.

I can cite a few prime examples of POS systems as it relates to this discussion.

Harbortouch (formerly United Bankcard), boasts of providing processing services to close to 300,000 merchants. I have applauded it for having the foresight to develop a robust POS system long before any, and I mean any, other ISO thought that owning or offering a POS system developed in-house would be indispensable in order to survive or increase retention rate. However, it is astonishing that long after EMV was implemented, Harbortouch has not upgraded to an EMV solution. I was told by a local merchant recently that Harbortouch promised him in August 2015 that his POS system would be upgraded shortly after October 2015. Despite this merchant’s recent communications and objections to Harbortouch, he has heard nothing that would alleviate his concerns about his exposure to liability.

Shopkeep is another POS software provider that is still not EMV certified. It claims it compensates merchants $500 toward chargebacks. Their Terms and Conditions reads that this amount is per merchant ID during the life of the account. Some merchants have had and/or will have far more than that amount. The point to focus on is Shopify’s software does not offer the chip card processing capability. So, merchants are still exposed to liability.

PC America, owned by Heartland Payment Systems, in turn owned by Global Payments, is a capable software designed primarily for restaurants. However, it is EMV certified only through Chase Paymentech, Vantiv, Mercury Payments (owned by Vantiv, in turn owned by Fifth Third Bank), and First Data using a Verifone VX805 PIN pad that connects to the front counter POS station. First, this setup is completely unsuitable for dine-in restaurants with waitstaff who serve guests at the table. It is unthinkable to now ask guests to walk up to the cashier and make the payment there, particularly if the guests have to enter their PIN number, which some issuing banks require. Second, and equally as important, the short list of EMV processors means merchants will have no choice but to switch to one of these five processors. If their account representative does not work with any of them, this will and can certainly upset the merchant who has established a close and trusting relationship with the representative. Third, merchant will be exposed to (potentially) a new level of liability and more headache if he/she has to pay an early termination fee to the existing processor or the ISO and then signs a new merchant processing contract that may confer unfavorable terms, hidden fees, possibly poor service, to name a few.

The examples of not-yet-EMV-certified POS software abound. EMV certification is costly and lengthy. It takes an average of six months, and perhaps longer nowadays, for Visa to certify POS software that need to work with a chip card reader. The backlog is partly to blame for the delay in certification.

Now, processing chip cards for many POS systems can be provided through gateways or bridges that make processing possible. One such gateway has been developed by a company whose CEO is in merchant acquiring industry. Value Added Resellers (VAR) of POS systems, commonly referred to as vendors, must use only this gateway for chip processing. However, the cost to merchants for this service stands at $1,500 plus 4-6 cents per transaction in addition to the regular per-transaction fee assessed by their processor. This hefty cost has discouraged many merchants to upgrade their POS system. To put things in perspective, a merchant who processes $20,000 with 1,000 transactions per month would incur the initial cost of $1,500 plus a fixed cost of approximately $300 for one VX805 PIN pad per POS station plus increased monthly recurring processing fee of $40-60 (4-6 cents per transaction multiplied by 1,000) in addition to the current processing fees. This is an added cost most merchants balk at.

So, the combination of huge cost and backlog has prevented many POS software companies from finishing their EMV certification.

On the other hand, there are a few companies that offer upgraded POS systems.

Square, and First Data, offering Square POS and Clover, respectively, are two companies that offer chip processing. Let me analyze both briefly.

I wrote an article praising Square on its innovation and foresight in 2014. However, Square has a serious shortcoming: it does not offer immediate live customer service. Merchants face the extra hassle of being forced to log into their online Square account, obtaining a code, and entering it on the phone when calling the main number. This is cumbersome, inconvenient, and it wastes merchants’ time, a setback for Square that has forced many merchants to leave Square’s service, notwithstanding Square’s recent stock price on the upswing. Those who do not yet have Square would think twice before switching to Square POS. To make matters worse, this service is now provided only from 6:00-6:00 pm Pacific Time, unsuitable for late-night establishments. Square’s competitors are doing a good job of hammering Square by pointing this out during their sales presentations. In this current EMV mess, if Square changed this strategy, it would be, bar none, the best company for most small merchants to process with.

First Data, on the other hand, offers live customer service and technical support. But the vast majority of ISOs who market Clover cannot offer live technical support or customer service because First Data has centralized these services within its own operation. First Data’s independent agents must pass a grueling test comprised of answering a few very personal questions. Lexis Nexis provides a series of questions, the answer to which can be wrong in its outdated database. For example, an important question is on the agent’s cellular phone number, the registered owner’s name and address. If the data by Lexis Nexis is outdated, the agents fails the test and is denied further service. I have discussed this matter in length in my book, Credit Card Processing: Exposé. The end result is the agent’s inability to serve the merchant who relies on agent handling the issue. And the lower-level managers cannot contact Lexis Nexis and ask for updating the database. No one knows who the contact person in First Data is who handles the relationship with Lexis Nexis. The resulting inefficiency drains all parties involved. Sadly, there is no access to higher executives in First Data, a enormously bureaucratic processor. I call First Data a 20-ton gorrila that is not nimble or agile.

Visa has upped its estimate of deployed EMV devices hovering around 80% or so. However, it is abundantly clear that far more merchants are not using EMV devices simply because they either cannot or do not want to spend the extra money, which for some locations could be in tens of thousands of dollars.

Merchant deserve to know why the EMV implementation was so vastly flawed. I hope we will have clear answers in future. I will write more updates in near future.


  • EMVgeddon© is a term I have coined to describe the massive disruption, confusion, and cost it has inflicted on the entire merchant (and by some accounts consumer) landscape in the U.S.
EMV Update 1

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