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July 19th 2019

Between a Rock and a Hard Place: Merchants and the Upcoming EMV Liability Decision

The countdown has begun for the EMV liability shift in the petro & convenience industry. From October 1st, 2020, the least secure party involved in processing a fraudulent transaction will be responsible for the associated costs and risks – exposing non-compliant businesses to incalculable chargeback costs.


With EMV implementation expected to cost tens of thousands of dollars per forecourt, and with fraud on the rise irrespective of EMV, soaring costs seem inevitable for the industry. This year, the annual cost of accepting cards reached its highest ever value in the U.S. as the global card schemes continue to bolster their own profits at the expense of merchants – and the financial burden of increased fraud liability will add insult to injury for the merchant community.



With just over a year to go, the pressure is on for merchants to define their strategy, and it’s essential that the cost, resource and disruption of implementation isn’t underestimated. By building a strong business case either for or against compliance, and by holistically and thoroughly reviewing all costs associated with the end-to-end payments supply chain, merchants can hope to mitigate the damage inflicted by the enforced liability shift.

To Comply, or Not to Comply?

The first step every merchant needs to take is deciding whether or not EMV compliance is the right path for them. Although non-compliance exposes merchants to the chargebacks, fees, and reputational damage associated with all types of fraud, implementing EMV is only likely to protect merchants from counterfeit fraud – a responsibility that has mostly been borne by the issuers. Even compliant businesses won’t be protected against all fraud, and considering the cost of EMV implementation and accreditation, some merchants may prefer to take the risk with chargebacks, rather than absorb the substantial capex for compliance.

There are also numerous potential issues with the implementation process itself, and achieving accreditation is unlikely to be smooth sailing for any merchant. Due to limited technical resources and accredited specialists in the U.S., CMSPI anticipates a significant bottleneck as merchants across the petro & convenience industry scramble to meet the deadline – as the wider merchant community witnessed with 2015’s liability shift. Merchants must act now to build their EMV strategy, and endeavour to get to the front of the queue for accreditation.

Not only is implementation both costly and resource-intensive, but it’s also likely to cause severe operational disruption. While the banks – the main beneficiaries of EMV – merely had to issue new cards, gas stations across the U.S. will need to rip up the asphalt in their forecourts in order to install the new equipment. This could put multiple pumps out of operation for weeks at a time, resulting in reduced resources and damaged revenues.

Nevertheless, it’s important that each merchant fully weighs the pros and cons of implementation. Despite the considerable investments required, EMV compliance will protect businesses against the substantial liability for counterfeit fraud over the years ahead. As we saw following the 2015 liability shift, the risk of non-compliance should not be underestimated, and merchants could experience huge surges in chargebacks following the October deadline. Although it may seem unjustified for merchants to cover 75% of the costs – particularly since the initiative mostly benefits the banks and is being forced on them by the networks – it may still be the best option available. By pulling together an in-depth and well-informed strategy, merchants can ensure the right decision is made.

Combatting Costs

The petro community will be understandably exasperated by these additional financial burdens. Since the Durbin amendment regulated interchange fees back in 2011, merchants have witnessed a systematic introduction of replacement network fees, and inflation of existing ones. At a time when the pressure is already on to reduce costs and streamline arrangements, the global networks seem determined to keep piling on more costs.

The Durbin amendment was originally intended to save merchants $9.37 billion annually. Just eight years later, 28 new and amended fees from the global networks have resulted in over half of these savings now being eroded. In the majority of cases, the most damaging of these new costs has been Visa’s Fixed Acquirer Network Fee (FANF), costing merchants an estimated $1.5 billion annually. Since this charge varies depending on the number of sites, it was particularly painful for petro & convenience stores.

As the total MSC in the U.S. surpasses $100 billion for the first time, these 28 changes are now costing merchants over $4 billion annually – further bolstering the networks’ profit margins of approximately 60%. However, this figure assumes that each fee is applied correctly and fairly by the processors. At CMSPI, we find that 1 in every 3 processing invoices contains errors – further inflating the overall cost of card acceptance for merchants. With even interchange ++ invoices remaining relatively opaque, identifying these errors and reclaiming misapplied fees can be a daunting challenge for any merchant.

However, amongst these continuous challenges, merchants have been thankful for the success of Durbin’s No Network Exclusivity clause. By ensuring all cards are co-badged, the regulation gives merchants the option of which network to route each transaction down. Those with optimized and dynamic routing arrangements are thereby able to avoid a proportion of these excess fees by sending transactions via more cost-effective, local PIN debit networks – and, in our experience, some merchants can expect to save seven or even eight figures annually through optimizing their routing arrangements.

Nevertheless, as cash usage continues to steadily decline across the U.S., the incurred volume of card fees is likely to rise. In order to both combat these unjustified fees, and to mitigate either the huge capex of EMV compliance or the cost of additional fraud liability, merchants must be diligent in ensuring their entire payments supply chain is truly optimized – with full routing capabilities; minimized processing fees; and the accurate and fair application of those fees.

Ultimately, there are pros and cons to either complying with EMV or absorbing the risk of fraud liability – and merchants need to be sure they’re making the right decision by building a robust business case. In either case, extra costs are unavoidable, and merchants must act now to achieve a streamlined, cost-effective payments supply chain well in advance of the 2020 liability shift.