Retailers Flush Out $35 Billion for the EMV Mandate
By Joe Skorupa
Ever hear someone use the phrase “flush out” when they really mean “flesh out?” It is a common mistake, unless they are referring to the EMV mandate. According to a recent IHL Group report, the cost to retailers for rolling out EMV by the October 1 deadline will be $35 billion. That is a ton of money. More importantly, it is a “colossal waste of time, effort and capital,” notes the report. Hence, “flush” seems all too appropriate.
Everyone in the industry agrees the current credit card payment system is no more effective in stopping fraudsters than a white picket fence around a nice suburban yard. Retailers want to appear neighborly and inviting to shoppers, as well as quick and convenient. Security measures, such as they are, are required to operate invisibly so as not to discourage shoppers from making a purchase at the magic moment when the credit card is ready for authorization.
As a result, a certain amount of fraud has always been accepted. In 2014 that amount was $8.6 billion, which is a big number. It is expected to rise to $10 billion in 2015. Numbers this high get attention and they did – from credit card issuers, who are responsible for making good on fraudulent credit card charges. Hence, the EMV mandate, which shifts the responsibility to retailers unless they meet EMV standards.
“Money Pit” Details
The IHL Group’s report “EMV: Retail’s $35 Billion Money Pit” takes a deep dive approach into the impact the EMV (which stands for Europay, MasterCard and VISA) mandate will have on U.S. retailers. Key highlights among the findings include:
- Although the U.S. market has the highest credit card fraud rate of all major countries in the world the total is extremely low – 0.15% of credit card sales. For a typical billion-dollar retailer that has 65% of its transactions in credit/debit sales that amount is $975,000.
- Average cost to update/replace POS-related software to meet the EMV deadline averages more than $1 million and that does not include new hardware, fees for installation/implementation, training and lost productivity.
- When all costs are factored in, according to studies from the National Retail Federation and the National Association of Convenience Stores, the total cost to the retail industry is $35 billion.
- Since the total amount of credit card fraud in the U.S. is projected to be $10 billion in 2015 this means the cost of meeting the EMV deadline ($35 billion) is far greater than the problem it is trying to solve.
- The typical EMV transaction will take 5-8 seconds longer than today. Credit-card processing will take 1.3 second longer and then, since the cards are required to stay inserted for the entire transaction ((like old ATMs), the customer retrieval process will take 4-6.5 seconds longer.
- These slower times will have a noticeable impact on high-volume retailers every day and impact all retailers during peak selling seasons.
- Average return on investment (ROI) for a $1 billion specialty retailer over three years is -77%.
That great flushing sound you hear is $35 billion of retailer capital going into a money pit instead of going into an investment plan that will flesh out advanced security measures needed to stop the growing threat of worldwide cybercrime.