EMV: What C-store Retailers Need to Know

NATIONAL REPORT -- There are some technological advances that retailers really look forward to. A new gadget that will make their jobs easier, or a new technology that helps boost sales perhaps. Conversely, there are things retailers do not request, but are forced to accept.

Europay, MasterCard and Visa (EMV) chip technology is one of the latter, Dan Hopping, president and CEO of Next Retail Group LLC, a Cary, N.C.-based consulting company that helps retailers deal with new technologies, told CSNews Online.

EMV is a global standard for the interoperation of integrated circuit cards -- also referred to as IC cards or chip cards -- and IC card-capable point-of-sale (POS) terminals, as well as for authenticating credit and debit card transactions. It is a joint effort between Europay, MasterCard and Visa to ensure security and global interoperability so that Visa and MasterCard cards can continue to be accepted everywhere.

There is still plenty of uncertainty regarding EMV, however, according to Hopping, a futurist who has delivered speeches at the NACS Show. "It has a deadline [for when it must be implemented]," he said. "But nobody is being clear about what the penalty is if you miss the deadline."

The first stated deadline was Oct. 15, but Hopping noted that few retailers have implemented EMV systems yet. Plus, it's not an easy process to do so. "For many retailers, this might be as big a deal as Y2K [compliance]," he said. "You may have to change your payment software, hardware and processes and help retrain your customers to deal with chip and PIN."

Hopping added that he's not even sure who put forth the deadlines for retailers to follow. "There are so many stakeholders involved, so it's hard to know," he said.

Despite the deadlines, Randy Vanderhoof, executive director of the Smart Card Alliance and acting director of its EMV Migration Forum, told CSNews Online that retailers are not required to implement EMV at this time. Instead, they receive financial incentives for enacting EMV and could face penalties in the future if they do not implement the technology.

One benefit of implementing EMV, according to Vanderhoof, is that retailers who have already done so and who process more than 75 percent of their payment transactions through devices that are capable of supporting EMV "will no longer submit their annual PCI (payment card industry) audit reports to the payment brands. That could be a huge annual cost that merchants have to pay to keep their PCI compliance up to date."

Retailers looking to learn more about the EMV guidelines can visit a website specially created by the Smart Card Alliance at www.emv-connection.com. "Merchants can go to that website and find a series of information links and documents they can review, ask questions and receive an overview about EMV," said Vanderhoof. "It provides all of the necessary information they need to make informed decisions."

Implementation Challenges
Hopping of Next Retail Group noted that EMV can be accomplished somewhat simply in regards to in-store purchases. However, customers who prefer to make mobile payments or Internet payments present a daunting challenge for EMV compliance. Admittedly, Internet purchases are not a large concern for convenience store retailers, but mobile wallet payments certainly could be in the near future.

"The problem regarding mobile wallets for retailers is knowing which [mobile wallet] technology will win," said Hopping. "Will it be Paypal, Google, Visa, MasterCard, Isis or Merchant Customer Exchange?"

He believes many merchants will not be able to successfully implement EMV until they have a mobile wallet payment system in place. "The payments channel through the retail infrastructure is the same pathway," he explained. "So you can't do one and ignore the other."

If retailers do not implement EMV, their fraud responsibility will become tremendous. "Some people are saying the liability [with EMV] could be very big and even wipe out a company," said Hopping.

Vanderhoof of the Smart Card Alliance relayed a similar concern. "If retailers do nothing, there will be a liability shift in 2015. Whereby, the least secure party in the transaction will bear the cost of any fraud associated with that transaction."

For instance, Vanderhoof said that if a retailer does not upgrade to EMV and a customer walks into a store with an EMV-capable card, the store owner will bear the responsibility -- beginning Oct. 1, 2015 -- if fraud occurs from processing the transaction on a magnetic stripe reader. Prior to 2015, the credit card issuer will absorb the liability for the fraudulent action.

Uncertainty Awaits
Although some aspects of EMV are easily understood, uncertainty abounds when it comes to a multitude of others aspects. Acknowledging this problem, the International Retail Users Group (IRUG) is attempting to navigate these murky waters. Hopping said IRUG is an effective group because it is totally retailer run and operated; vendors have no say except for marketing persuasion.

"It's probably the last of the true user groups," said Hopping, who is a member of IRUG's board as a professional liaison. "That's the key to why it's been successful for more than 30 years. Vendors attending the event cannot sell any products."

IRUG, led by President Ron Ferri of supermarket and convenience store operator Giant Eagle, recently completed an EMV and mobile payments focus group in Raleigh, N.C., in an attempt to educate retailers, share information and offer best practices about implementing EMV chip technology.

"U.S. retailers face a tremendous challenge in preparing their hardware and software environments to accept and process EMV chip technology for credit and payments and the advancement of mobile retailing," Ferri stated.

While plenty of roadmaps exist on the Internet about EMV, all of them have been formulated to help financial companies, not retailers, Hopping stated. That's why IRUG has formulated a retailer roadmap. The organization has also formulated a white paper containing examples of "lessons learned" from retailers that have already implemented EMV and describing what they would do better if they could do it all over again.

Financial Burden
Another challenge that awaits convenience store retailers planning to implement EMV is the financial aspect. Although there are large c-store chains that can afford to make the payment system changes, smaller retailers more likely cannot.

Hopping admitted that smaller retailers do not have the resources to properly investigate EMV. "Everybody who talks to you is trying to sell [small retailers] something," he warned. "And some of them are trying to scare you. So what do you do?"

Erv Jones, IRUG's director of marketing and marketing logistics, told CSNews Online that one thing retailers shouldn't do is wait to implement EMV at their stores. "[Retailers] should be taking action now with the [current] information they have," said Jones. "But we've been making enhancements to the roadmap based on feedback we received at [the October user group event]," he noted. "We're going to be coming out with a version 2.0 soon."

Although he acknowledged that the IRUG roadmap still needs enhancements, Jones noted that the user group's website currently has an official roadmap, as well as tons of good information retailers can use. C-store operators can visit www.ibmretailug.org and click on the EMV banner to learn more.

"What the document does really well is answer a retailer's question of 'What do I do first?'" Jones said. "Who do I call? What's my first step? What's my second step?"

Getting retailers together and creating a roadmap that tells retailers what to do and when to do it is the only answer, according to Hopping. Subsequently, retailers must talk to their vendors and decide which technologies to upgrade. The IRUG white paper provides a list of questions for retailers to ask their vendors.

Hopping added that retailers are in "trouble" if they don't take steps toward EMV implementation by this April because the deadline will no longer "slide" regarding moving the liability from the bank to the retailer.

The Princeton Junction, N.J.-based EMV Migration Forum, created by the Smart Card Alliance in July, is another group aiming to clear the confusion. The Forum is comprised of manufacturers, processors and retailers. Already comprising 38 members, it met in September at MasterCard's headquarters in Purchase, N.Y., and will conduct another meeting at Visa's headquarters in Foster City, Calif., on Dec. 6 and 7.

"We plan to meet once a quarter to have face-to-face conversations and updates about EMV migration in the U.S.," said Vanderhoof. "The EMV Migration Forum has set up four separate working committees that meet on a regular basis via conference call to define the requirements for EMV migration for all stakeholders and to get input from the different participants."

Regarding retailers, Vanderhoof stressed that the EMV Migration Forum has reached out to several trade organizations, including NACS, the Association for Convenience & Fuel Retailing, the National Retail Federation, National Restaurant Association and the Food Marketing Institute to join as members. "Those organizations have all begun to have EMV discussions and we want to bring in their ideas and make them part of the larger discussion as well," noted Vanderhoof.

As for IRUG, its next mobile payments focus group meeting is scheduled for April 21-24 in Anaheim, Calif. "In April, we are going to try to take it to the next step," Hopping said. "We're going to try to help retailers stay one step ahead of what they have to do. Because if [retailers] have not done the first three or four things on the roadmap by April, [they] are in trouble."