Convenience retailers are working ahead of EMV deadline to meet compliance standards.

By Pat Pape, Contributing Editor

A monumental change to the retailing industry will occur in October when merchants who are not EMV compliant will become responsible for any fraudulent purchases made with non-EMV credit or debit cards at their outlets.

It’s a change most retailers dread.

EMV, which stands for Europay, MasterCard and Visa, is the global standard for credit and debit cards that contain tiny computer chips. Unlike the magnetic-stripe cards that U.S. shoppers have used for decades, EMV cards generate a one-time-use transaction code for each individual purchase. Outside this country, the single-code system has helped quash criminal activity involving the creation and distribution of fake cards with stolen card numbers.

In fact, markets that have adopted EMV technology have seen counterfeit card fraud drop by more than 60% within two years.

While everyone hopes for that same result in the U.S., getting there is painful. To accept EMV cards, many retailers will need to update their stores’ existing technology, including payment terminals and software. Estimates put the price tag of those updates at $600 per payment terminal. Updates to payment-acceptance technology at the gas pumps will be necessary in 2017 and cost even more.

LEMONS TO LEMONADE
Mirabito Fuel of Binghamton, N.Y., operates 75 Quickway Food Stores, Mirabito and Convenience Express Stores, and until recently, none were in compliance with the EMV card-acceptance standards.
Eric Bunts, director of information technology at Mirabito Holdings Inc., looked ahead to the October 2015 deadline and realized that the chain needed a massive technology update in order to comply. It was then that the company adopted that oft-quoted philosophy about taking lemons and making lemonade.

“We were going to be forced to make the investment to be compliant,” said Bunts. “And we wondered what additional benefits could be achieved through this project. So, we came up with a wish list of [technology] functions that we’d always wanted.”

The retail outlets operated by Mirabito Fuel offer customers a generous points-based, loyalty program dubbed Rewards Plus. Members earn points when they shop at participating locations and may redeem the points for gas discounts, merchandise and monthly specials. The program was already popular with customers, but management wanted the option to enhance the offering and keep it current. Mirabito’s existing technology was holding them back.

“We used our wish list as a guide to look at different manufacturers and products, and ultimately, it resulted in us making a change from one manufacturer to another,” said Bunts, whose company converted to POS designed by transaction technology provider NCR and a back-office operation supported by ADD Systems. “As a byproduct, we will be able to enhance our functionality far above and beyond what we had previously.”

UPDATING REWARDS PLUS
In the past, Rewards Plus was a manual process that required Mirabito shoppers to swipe their loyalty cards several times during a transaction, and there was a lot of prompting.

“The customer’s time at the card reader was significant,” Bunts said. “Now with the new architecture, it’s much more streamlined and automated. The customer is still empowered with decision making, but it’s a much more efficient process.”

The changes also will allow Mirabito to make future loyalty program updates as opportunities arise. “I don’t want to go into specifics yet,” he said. “But it’s giving us a new foundation.”

It takes one work day to convert a store to the new system. Currently, the company is converting four stores per week, giving them the ability to accept EMV cards while simplifying the Rewards Plus program. By the end of June, all stores should have the new technology in place. Already the stores with updates have generated responses from the people who use the system every day.

“We’ve had overwhelmingly positive feedback from both customers and employees,” said Bunts.

“They’re happy with the change, and we’re happy that the return on investment is greater customer satisfaction and the ability to enhance our programs and offerings.”

HARDWARE CHALLENGES
Credit card fraud continues to be a serious U.S. problem. This past April, the Florida Agriculture Commission announced that a sweep of more than 6,000 gas stations in the state resulted in the discovery of 81 illegal credit-card skimmers that were stealing card information from unsuspecting customers. Industry experts say EMV cards will make skimmers virtually worthless to criminals.

Despite the fact that credit card fraud is expected to be a $3.6 billion industry by the end of the year, there is no law that requires merchants to update existing card-processing equipment by October, and no stores will be penalized if they don’t make the change. All retailers will be able to accept EMV cards whether or not they make the upgrade, because EMV cards, in addition to the internal chip, will feature a magnetic stripe that allows them to function in a non-EMV payment environment.

The most serious consequence of not having EMV technology in a retail outlet is the risk of being required to provide reimbursements for purchases made with fraudulent cards.

Bunt acknowledges that becoming EMV compliant is a big investment and that the decision to make the update is often driven by the ability to make the necessary expenditure.

“It’s an individual decision to assume fraud liability or not, and the investment is definitely significant,” said Bunts. “This is daunting for a lot of companies, and it’s not something to be taken lightly. It’s a hard decision to make when the driving factor is the ability to be able to take credit cards.”

There are various patches retailers can adopt depending on the technology they currently use, but patches will only buy a few years grace. If a retailer has plans to be compliant this year, “the clock is ticking,” Bunts said. “The sooner you start, the fewer issues you’ll have with hardware acquisition. The closer you get to the deadline, the more difficult it’s going to be to acquire the EMV-compliant equipment. We’ve already seen [new] equipment shortages, and we’ve had to make adjustments. That’s a real concern.

OPEN TO OPPORTUNITIES
Randy Vanderhoof serves as executive director of the Smart Card Alliance based in Princeton Junction, N.J., and as director of the EMV Migration Forum. He believes Mirabito Fuel and other retailers saw an opportunity and made a judicious business decision.

“Talking to industry experts that service the retail market, I’m told that a number of their retail customers are upgrading their backend systems at the same time they are making their changes for EMV,” Vanderhoof said.

Of course, the synergic benefits are hard to overlook as c-stores are weighing the total investment.

“It’s a matter of taking a fresh look at the existing system and deciding whether or not it’s the right time to make changes that generate other benefits,” he said. “It might be most cost-efficient to make those upgrades and changes to new payment software platforms that accept EMV payment rather than trying to modify or change a software system that may become antiquated in the near future.”

In the end, Mirabito isn’t soured on the due diligence that it has had to pay, to ensure all systems are a go.

“It’s an opportunity to research what technology enhancements can be implemented at the same time,” said Bunts of the EMV upgrade. “When you do your analysis, you want to look at that.”