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The card brands are taking their last major step in the U.S. EMV migration by enforcing a liability shift at fuel stations.
The April 17 deadline has been delayed multiple times — it was originally set for October 2015 — even as the rest of the country marched ahead with EMV conversions at the point of sale.
The challenges facing fuel retailers included costs, available hardware and certification processes. And after the extended deadlines, the card brands are seeing results.
"The fuel industry has made significant progress upgrading to a more secure and consistent EMV purchase experience," Mastercard said in a written statement. "As the number of chip transactions at the pump continues to grow, we’re working with the fuel industry to help them meet the upcoming liability shift milestone and further curtail fraud and minimize risk to consumers."
In the past, Discover, American Express and other card brands have followed the lead of Visa and Mastercard in setting their EMV deadlines.
But the challenge is far from over, with many fuel stations still questioning the costs to upgrade pumps, contemplating the business case to do so and getting in line for the proper hardware, software installations and certification processes that have backed up considerably during the pandemic.
"The card brands are correct in that more sites are coming online, depending on which card brand you listen to, because they don't publish the statistics on this yet," said Linda Toth, managing director at Conexxus, a nonprofit member association that establishes operating standards and guidance for convenience store and fuel merchants.
"We are making progress in the industry toward EMV, but is everyone going to be compliant in April? That answer is no," Toth said.
One major stumbling block for the top oil companies is having so many different combinations of fuel pumps and indoor point of sale systems, as well as various dispenser manufacturers and PIN pads.
"They need end-to-end certification on all of that equipment, and it's not just certification of a device; it is for every component in that payments chain," Toth said. "And it has to have the [EMV] software developed and in place."
The delays are plaguing merchants at this point — even those who may have been trying to prepare for the EMV shift well ahead of the COVID-19 pandemic.
"I was talking to some merchants who were saying it could be another year before they see solutions on all of their combinations of equipment," Toth said.
Some major oil companies were well into the EMV migration process early in 2020, including
Numbers reveal noncompliance
Any merchant that does not comply with the card networks' EMV mandate faces a liability shift for fraud. In other retail categories, this was a compelling risk, but for gas stations the cost of ripping out and upgrading pumps doesn't always outweigh the potential for fraud losses.
A Conexxus survey of fuel retailers of all sizes last fall clearly shows some faltering and uncertainty before the April EMV deadline. The survey compiled 55 completed questionnaires with responses from those representing 18,819 retail sites with a median of 22 sites and a mean of 342 sites per survey response.
Of the 31% of station operators who had no EMV acceptance in place at outdoor pumps, 82% said they planned to do so sometime in the future, while 18% were undecided.
When citing the reasons for not deploying contact EMV outdoors yet, and choosing any factor that applied, 100% of fuel station/convenience store operators said the cost was too high. About 67% felt the risk for not converting to EMV didn't justify the expense.
Among the challenges cited, nearly 30% mentioned lack of available software, while 27% were waiting on certification. While nearly 28% said the complexities of conversion prevented them from being 100% deployed, about 16% were unsure how they would go about paying for the upgrade.
For respondents with a higher store count, the lack of available software as a key challenge rose to 89%, and lack of available hardware was 86%.
It appears that for many noncompliant merchants, the issue will be availability of hardware and software, more so than taking a stance against converting to EMV overall. As such, 43% of respondents felt they could be 100% deployed in the first half of 2021, and another 16% said the second half of the year would be possible.
However, deployment at all sites for operators of numerous stores moved the needle out further, with 53% saying 2023 was the best estimate for all stations to be EMV-ready.
Contactless EMV cards became more popular during the pandemic, and most fuel operators indicated they were planning to have that option available. Just over 21% said they were 100% deployed with contactless EMV, while nearly 60% said they planned to do so.
Some brighter forecasts
A Mercator Advisory Group research report on EMV preparedness at the nation's fuel pumps concluded that fuel merchants would see the same fraud reductions from EVM that other categories have had, and despite costs, EMV is necessary to avoid long-term fraud liability.
Mercator also predicted that more than 90% of gas stations would convert to EMV by the end of 2021, and that U.S. automated fuel dispensers will achieve near-complete EMV conversion by the early months of 2022.
"I think the card brands know that they have already postponed fuel pump EMV conversion twice and operators have had plenty of time," said Raymond Pucci, director of merchant services practice at Mercator and author of the report. "But conversion costs and human nature’s procrastination tendencies have been key hurdles."
The card brands are focused on getting to the finish line now, Pucci added.
"There may have been a possibility for one more postponement to be granted in the last several months, which could have been chalked up to COVID, but that time has passed," he said. "Yes, some small station owners will take their chances passing on EMV and hope that fraudsters do not hit the jackpot at their pumps."
The Mercator report cited an ACI Worldwide survey that estimated 67% of fuel retailers would be ready with EMV by the April deadline. It also noted that terminal providers Ingenico and Verifone have been actively working with Gilbarco Veeder-Root to encourage the change as early as possible.
The report predicts a flood of EMV pump conversions to occur between April and December of this year, as the reality of the liability shift sinks in.
Merchants not entirely convinced
Yet, the inevitable deadline doesn't change the arguments against EMV adoption in the fuel industry.
"Replacing a fuel pump with a new one is a five-figure investment, and a terminal inside of a store is much less than that," said Doug Kantor, counsel for the Merchant Payments Coalition. "Also, there are only a couple of manufacturers of these fuel pumps, so one consequence of having these deadlines that hit a whole industry at the same time is you get a backlog on the equipment ordered."
Even if a fuel operator had decided six years ago to begin an EMV conversion, it would have run into logjams because all of the other retail segments were working to comply with their 2015 deadline, Kantor noted.
"All of the programming and labor shortages and constraints have been there for years, no matter when you decided to start your EMV process," he said.
It's also difficult in the fuel industry because there are so many single-store operators or those with 10 or fewer stations/stores under the same management, Kantor added. "You are talking about hundreds of thousands of individual sites that fall into those categories, so it's a big challenge in doing all of this."
Fuel providers have long argued that they already pay higher interchange rates, depending on the level they fall into, because of some higher card-present or card-not-present fees. With that backdrop, the EMV conversion simply represents another cost, Kantor noted.
Conexxus has estimated fraud losses at fuel stations to be $450 million in 2020, and various fraud ploys continue to plague the industry above and beyond skimmer devices attached to mag-stripe hardware.
"There are cases where criminals will pull into a station with a truck carrying an extra, large fuel bladder [tank] and they will fill that up" — by paying with a stolen card — "then go to a construction site and sell the fuel," Kantor said. "The fuel station operator loses thousands of dollars on that type of fraud alone."
