Expert Insight: The Real EMV Risk
Published: September 10, 2015
ATLANTA -- Though the deadline for EMV upgrades at gas pumps is still two years away, many fuel marketers and convenience-store owners across the United States are already analyzing whether the benefits of upgrading their fuel-dispensing equipment to meet this standard is worth the cost to do so.
The pivot point for most discussions is the severity of the liability shift, in particular: How much cost and risk would a retailer incur if they choose not to acquire EMV-compatible equipment? I believe, however, there is another danger that has both a higher probability and a greater potential financial impact. This is the risk of share loss to EMV-enabled competitors.
Though one of the last countries globally to adopt EMV (standards set by Europay, MasterCard and Visa), the United States will begin to catch up this fall, when the October 2015 point-of-sale liability shift compels many retailers to make the change at traditional retail outlets.
This means that in the U.S., consumers will have two-years-plus of EMV experience prior to the October 2017 liability shift at the gas pump. By then, it is likely that security conscious customers, who, according to most estimates, make up between 30% and 60% of the shopping public, will have altered their shopping habits to take advantage of EMV-secured locations.
The potential for share loss was highlighted in a front-page story in theWall Street Journal on Sept. 4 stating, “many gas stations will be among the last merchants to install equipment accepting a new generation of fraud-resistant cards.”
“In global markets that have adopted EMV payment, Gilbarco has seen consumers seek out EMV-enabled dispensers and shift their fueling to locations that they believe to be more secure,” Parker Burke, director of payment and marketing applications at Gilbarco Veeder-Root, told me. “Consumer EMV awareness and adoption will accelerate as broad retail converts through the balance of 2015, and consumers will start seeking out convenience stores that offer EMV security.”
Data from other global markets confirms Burke's belief. In many countries, “early movers” for both EMV adoption and promotion have seen share increases in both gallons and in-store sales.
Adding to fuel marketers’ concerns is the wide early adoption expected among retailers who offer fuel as an added traffic generating service: grocers, warehouse clubs, and multi-state c-store retailers with private-label fuel and a focus on foodservice. If we accept estimates that EMV adoption will constitute just half of fueling sites by 2018, that would still make it easy for already-fickle consumers to find an EMV-enabled option at a nearby corner.
Of course, manufacturers, including Gilbarco, Verifone and Wayne, anticipated the increased demand and have scaled production accordingly. Orders for Gilbarco’s Applause TV offering doubled in June of this year, according to a recent CSP Daily News article. Market intelligence suggests that a much greater percentage of this equipment is going to the types of sites mentioned above--grocery, big box and QSR-focused private brands--than to traditional c-stores and gas stations.
If we can agree that the question on the table is not if, but when, you will upgrade your pumps to EMV, there are two additional factors to consider:
The first of these is the risk of increased costs as demand accelerates. Pump manufacturers are communicating the potential of price increases--a consensus estimate being about 4% to 5% per year--starting as soon as 2016.
The industry is already, in some markets, struggling with a shortage of factory-trained technicians to handle installation of new pumps and CRIND EMV retrofit kits. As a result, it’s likely that we’ll see increases in labor costs that may approach double digits as more overtime has to be employed to complete EMV upgrades.
“We are seeing an increase in demand for technicians to both implement POS upgrades and for sites that are starting to upgrade their pumps to be ready for EMV,” said John Keller, vice president at Petroleum Solutions, which facilitates such installations. “All indications are that demand for technicians will significantly increase through 2016 and 2017.”
For convenience store retailers that finance their gas pump upgrades, either through a bank or using dispenser equipment financing, rising interest rates represent a third area of additional cost by waiting until 2017 or 2018. A 1% increase in borrowing costs from your bank or in an equipment-financing agreement can be equivalent to a 2.8% price increase over the term of the loan. The Fed has stated it wants to get rates back to "normal" levels, and a 1% increase in prime in the next year is not out of the question.
These three factors could combine to have an impact on costs for retailers of 15% or more for those who wait until 2018 to move.Optimizing Marketing Technology On-Site
Another consideration is if your site is optimized for marketing to your customers. In 15 years we’ve evolved from two-line text displays, through monochrome 5-inch displays, to large, full-color displays promoting in-store products, interacting with and entertaining fueling customers.
As you consider what your on-site marketing will look like in 2018, consider these technologies and their impact on consumers, at your or a competing site:
As more brands launch and promote loyalty programs, being able to execute these offers at the dispenser and in-store becomes critical.
"Gas pumps are assets with a long, useful life, and retailers need to consider their needs for today, as well as their offerings five to 10 years in the future,” Burke said. “Therefore, it is important to ensure that their equipment has the ability to handle marketing applications and other revenue-generating features.”
When thinking about your plans for the coming year, I encourage you to talk with your fuel suppliers and equipment vendors to understand their technology roadmaps. Understanding the complete picture, including the benefits of upgrading and the pitfalls for not doing so, will help you create the best EMV implementation plan for your business.