NACS Highlights Costs of Transition to Chip Card Technology

Despite average cost of switch to EMV exceeding half of annual profits, failure to include PIN creates “missed opportunity” to reduce fraud further, says NACS Board Director Jared Scheeler.

October 22, 2015

WASHINGTON – The House Small Business Committee held the second hearing on “The EMV Deadline and What It Means for Small Businesses” on October 20, which focused on the retailer experience with the EMV transition.

At the first hearing, held two weeks ago, the Committee heard from witnesses in the banking and payment card industries who touted the low costs of the EMV transition and the security benefits of Chip without PIN. Wednesday’s hearing focused on retailers and showed a different picture: the high and varied costs of the EMV transition and its security weaknesses. 

Testifying at the hearing, Jared Scheeler, managing director of The Hub Convenience Stores Inc., indicated that it has cost his chain of four North Dakota convenience stores $134,500 to date to install point-of-sale and pump card readers that accept EMV chip transactions. The average transition cost is more than $26,000 per store, compared with an average profit of $47,000 per year, bringing the total cost to roughly $3.9 billion for the 152,000-plus convenience stores nationwide.

“As a small business, the transition to EMV has been a costly and burdensome undertaking. It does not appear that the card companies took into consideration the realities of operating a small business when they came up with their transition plans,” asserted Scheeler. “In addition to the substantial time and money involved, the card companies have erected considerable obstacles that restrict my ability to reduce payment card fraud at my stores.”

In addition to the direct cost of replacing equipment, Scheeler cited lost management time; payments and lost income to downtime from required software upgrades; as well the substantial but yet not fully known obstacles of getting equipment programmed and certified by the card companies. Each company requires separate certifications for credit, PIN debit and signature debit, which will be followed by pilot testing and “significant” staff training before EMV transactions can be accepted. Finally, ongoing maintenance and upgrade expenses are expected to exceed $2,200 per store annually.

Other witnesses included:

  • Keith Lipert, owner of Keith Lipert Gallery, testifying on behalf of the National Retail Federation
  • Jami Wade, owner of Capitol City CORK and Provisions & Capitol City Cinema
  • Art Potash, CEO of Potash Markets, testifying on behalf of the Food Marketing Institute
  • Ed Mierzwinski, consumer program director and senior fellow at the U.S. Public Interest Research Group

Except for one witness, all of the retail witnesses told policymakers about the significant costs of the EMV transition that go far beyond the estimates put forth by the card networks. Four out of the five witnesses also testified that the fraud-prevention benefits of chip with PIN are much greater than the chip without PIN, which is what the card networks are promoting.

Mierzwinski told lawmakers that “there is no doubt that chip and PIN is safer than chip and signature,” but that the reason the banks and card networks have chosen chip without PIN is simple: They “make more money from signature transactions.”

Relatedly, Scheeler told the committee that the so-called “EMV liability shift” is a bit of a misnomer because merchants have always been on the hook for lots of fraud despite paying for fraud and fraud prevention through exorbitant swipe fees, chargebacks and potential charges relating to data breaches.

Members of Congress asked a wide variety of questions at the hearing. Chairman Steve Chabot (R-OH), Ranking Member Velazquez (D-NY), and Representative Blaine Luetkemeyer (R-MO) all wondered about how and why the costs of the EMV transition vary by industry. After hearing from Scheeler, Chairman Chabot agreed that the costs to transition were “significant” for a business in the convenience store industry compared to some other industries. Policymakers from both parties repeatedly asked the witnesses whether small businesses had been given enough information to inform their transition plans. In fact, at one point Representatives Janice Hahn (D-CA) noted that she thought Visa’s “20 city EMV education tour” fell woefully short of providing small businesses with the information they needed to effectively transition to EMV. 

This is the second EMV-focused event on Capitol Hill this week. On Monday, the House Congressional Payments Technology Caucus, a group of lawmakers with a particular interest in payments technologies and policies, held a closed-press briefing on the EMV transition. Former NACS Chairman Tom Robinson, president of Santa Clara, California-based Robinson Oil Corporation, testified on behalf of the convenience store industry and shared the NACS perspective on the EMV transition and the need to increase the security of the payments system.