Merchant EMV Certification Woes

by Raymond Pucci 0

Somewhat lost in the shuffle of EMV transition issues is the certification process required of the newly installed terminals and related software at merchants’ POS. So far, most discussion has been about merchants’ delays in ordering the required equipment, as well as card issuers’ backlog of shipping millions of chip cards to consumers. But now, guess what? These newly installed EMV enabled POS terminals now have to be fully PCI-compliant and certified before the new payment transaction process can take place as intended.

Avi Kaner, a co-owner of the Morton Williams supermarket chain in New York, has spent about $700,000 to update the payment terminals at his stores.

Trouble is, he cannot turn them on.

The new terminals can accept credit and debit cards with embedded digital chips, a security feature intended to reduce the number of fraudulent purchases.

But before the payment systems can work, they must be certified, a process that Mr. Kaner and many retailers around the country are waiting to happen. In the case of Morton Williams, the holdup has lasted several months.

The cost of waiting, retailers say, is piling up. Until recently, banks covered much of the cost of fraudulent purchases. Since Oct. 1, though, merchants that cannot accept chip cards have had to shoulder the cost of fraud, and banks have not been shy about passing along the bill.

Banks say that retailers waited till the last minute to update their terminals. Retailers point to financial ties between the banks and the companies that provide certification, saying there is no motivation to move faster.

Complaints have been widespread among midsize businesses — not as small as a mom-and-pop corner store but smaller than a big-box chain. Midsize merchants have more specialized needs than a store with a single location, for example, as a bigger business often needs payment software tailored to specific loyalty programs, inventory or other systems. Those tailored systems can complicate the approval process.

This opens up a new front in the battle brewing among merchants, card issuers, and acquirers/processors. Merchants are unhappy about how fraud liability has been lateraled to them by the card issuers, and some Florida merchants have filed a lawsuit against credit card networks and issuers. While EMV terminal certification is a separate issue, it is starting to cost merchants some serious money, beyond what they paid for the new POS terminals. Kudos to Chase for stepping up and saying they will absorb charges caused due to their fault. We will soon find out which acquirers, processors, and ISOs best serve their merchant customers.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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