Are Small Retailers And Banks Likely To Miss The EMV Deadline?

While chip-embedded cards have been popular abroad for almost two decades, in the U.S., the mag stripe has hung around.

Until now (or this fall) anyway, when 575 million cards – about 75 percent of credit cards and 40 percent of the nation’s debit cards – are expected to flip to chip cards in what is the largest card rollout in decades.

The good news is that tens of millions of U.S.-based customers already have their new EMV card in hand – the bad news is that only a few very large retailers (Walmart, Target, Costco) actually have the terminals in place to allow consumers to pay with them. Others, particularly smaller merchants hit harder by the costs of an EMV upgrade, are now starting to say they simply will not make the deadline for the liability shift by October. A coalition of grocers and pharmacists have asked the major card networks to officially push back the deadline, saying they were concerned that holiday shoppers who were unfamiliar with the cards would be confused by the shift.

So far, the card networks have not indicated that they are receptive to (another) delay.

The situation is further complicated by small banks, many of which will not have finished issuing their new EMV cards till after the liability shift has come and gone later this year.

“Some of [the small banks] are struggling with the complexity of it, and the cost is a factor,” said Jamie Topolski, director of alternative payment strategies at Fiserv Inc., which is helping small banks navigate the transition to chip cards.

EMV cards cost about $1 to produce – five times as much as a regular mag stipe card – meaning this upgrade will not come cheap for smaller banks.

“We want them, and we hope the benefits outweigh the costs,” said Doug Gulling, chief financial officer of West Bancorp. Inc., which has $1.5 billion in assets.

Those benefits include greater security, which experts think will justify their costs. The cards are theoretically more difficult to breach and thus more likely to save both banks and merchants the costs associated with mag stripe cards: fraudulent card creation and use.

“The large issuers are very sophisticated and we have been working on this for years, but there are some people that are just scratching the surface,” said Steve Montross, chief executive officer of CPI Card Group, a manufacturer that shipped about 70 million chip cards to U.S. issuers last year.