EMV Liability

By John Drechny, CEO, Merchant Advisory Group September 5, 2019

If you thought the shifting of fraud liability from the issuers to the merchants was complete, it must mean you don’t operate a fuel station. When the original date was set for the implementation of EMV in 2015, EMVCo made an exception for automated fuel pump transactions. The delayed liability shift date for outside pumps at fuel stations is October 2020 due to the complexities of updating the pumps. As the date approaches, the industry grapples with many issues on implementation, and one must consider if the date is still too aggressive.

First, let’s consider the work that needs to be completed for EMV to work at the pumps. Like many merchant systems, this does not mean adding a new terminal and acceptance is complete. Fuel merchants are beholden to several upstream providers in order to successfully implement EMV. The process starts with the need to have new hardware installed at each pump. There are an estimated 1.2 million fuel pumps in the U.S. which need updating; however, there is a shortage of technicians to perform the work. A quick scan shows over 700 positions posted online today for fuel technicians. There are simply not enough people who can perform this work. 

The next step is new software at the pump to accept the EMV transaction format and send it to the acquirers. Merchants again are dependent on the pump manufacturers to provide the software. Based on a survey conducted by Conexxus and the MAG, not a single respondent said they have solutions for all the configurations they support. This becomes problematic as receiving the code is just the first step in being able to implement. Once the code is received, the format must be introduced in a test environment and go through regression testing. If a merchant passes regression testing, the next step is certification.

While the industry has been collaborating to reduce the friction in the certification phase by allowing for more self-certifications, this step is far from simple. Even the most sophisticated merchants typically have to go through multiple certification rounds before passing. This is also another area which tends to be a bottleneck as both networks and acquirers have limited bandwidth in which to complete the testing. 

In some cases, the data needed for the new transaction is greater than the bandwidth of the communication line to the pumps. In this circumstance, upgrading the communication line is necessary, which may require cutting concrete to lay new cable to the pumps. Upgrading communication lines may trigger the requirement to bring the stations up to new EPA standards and add costs for station owners. 

In addition to getting the hardware, software, and communication lines upgraded and certified, station owners may also have various other third-party providers like POS systems and gateways which must be brought up to date. Based on the survey, only 1/3 of the sites felt they would have working solutions in place by the liability shift date. 

One of the major differences in implications for station owners is that when the EMV liability shift happened in brick and mortar locations, only 20% of the cards were chip enabled. Today, 95% of cards have been reissued with chip technology. This means the shift in fraud will be dramatically greater as more accounts will be eligible for the fraud to shift to the merchants. 

The station owners are struggling beyond being ready for the shift - just as the brick and mortar merchants were - on the payback for implementation. As fuel is generally a low margin item, it is estimated 45% of the stations don’t make enough income on fuel sales in a year to pay for the cost to implement EMV. Many owners may have to decide between implementing EMV in an expedient fashion or closing a station that could become unprofitable.

One of the more frustrating parts in this whole scenario is that the merchant becomes liable regardless of anyone else in the ecosystem being able to deliver an implementable solution. It is time we step back and look at the implementation timelines and requirements to ensure all parties have deadlines instead of only the end users. Software and hardware providers should be required to deliver specifications to merchants with sufficient time for testing and implementation. Standard replacement cycles should be considered so undue burden is not put on the end users. The ecosystem should work the same for all participants.

The MAG is working in coordination with all the stakeholders in the ecosystem to review the current timelines and seek relief for the station owners. We are engaging in discussions around both delays in the liability shift deadline and possible mitigation steps station owners can implement. We are also advocating that the industry considers the learnings from the brick and mortar implementation and look at limiting issuers’ ability to chargeback transactions for a period of time after the liability shift.  Together we can all make the ecosystem better, but it must be done in a fair and transparent manner. 

While stakeholders explore discussions regarding the liability shift, it is important for the industry to continue working towards implementing EMV technology at the pumps. There is no promise any relief is coming, and missing the implementation could produce a large chargeback liability.