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Most U.S. Merchants Will Not Make EMV Deadline; Less than Half of Small Businesses Have Any Plans To

According to a recent report from Javelin Strategy & Research, up to 75 percent of merchants in the United States will not be EMV compliant by the October 15th deadline. Many major retailers have already started implementing EMV terminals but smaller merchants are much further behind and many have no plans to catch up. A survey commissioned by Intuit in late April found that only 42 percent of small businesses plan to make the switch to EMV.

At the end of 2014 the EMV adoption rate among U.S. merchants was 7.3 percent. As many large retailers have invested in upgrading their payment terminals this figure has climbed in the first half of 2015, but only about one-in-four merchants are expected to be EMV compliant by the liability shift date, according to Javelin. Javelin also estimates that the total cost to upgrade to EMV will be $8.7 billion across merchants and financial institutions. While many large and enterprise organizations have already started this transition, there are several signs that smaller merchants and issuers are lagging behind.

For merchants who have no plans to migrate to EMV or are undecided, the major prohibitive factor is cost. 57 percent of small businesses cited the cost of new POS terminals as the top reason they have yet to upgrade. In addition to increased expenses for merchants who are being asked to upgrade their sales terminals, card issuers incur costs for issuing EMV or chip cards to replace magnetic stripe cards. The cost of issuance is four times greater with EMV cards versus mag-stripe. While 41 percent of Citi’s customer base and 36 percent of Bank of America clients had EMV cards in late 2014, it will take many smaller issuers and credit unions a long time to catch up.

The transition to EMV will make Customer Present payments more secure but it won’t occur overnight. There will be a significant transition period where consumers and merchants make and take a mixture of EMV and traditional mag-stripe transactions. Fraudsters committing counterfeit card schemes will continue to do so following the upcoming EMV liability shift date, but they will likely begin targeting smaller merchants who do not yet have EMV compliant sales terminals. The growth of EMV in the United States will do more to protect cardholder data and eliminate counterfeit card fraud at the point-of-sale, but fraudsters will continue to shift fraud attacks in response. As larger merchants roll out EMV card readers fraudsters committing counterfeit card fraud will move on to smaller merchants that haven’t yet made the transition. But in time that gap will close as well, and more and more fraud activity will move to the Customer Not Present channel.

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