The month of October 2015 was supposed to be a reckoning of sorts for the retail industry: retailers were told to transition to the new chip-based EMV (Europay, MasterCard and Visa) cards and associated devices or be liable for fraud committed with older, more traditional swipe varieties. Eight months have since passed, and thanks to a variety of news outlets and research centers, we're starting to get a better view of how the retail landscape responded to the demands of those credit card processors.
"Chargebacks," the term used to describe the costs of fraud within the industry, are starting to stack up, according to a Wall Street Journal article published May 7. Chargebacks to small- to medium-sized retailers increased 15% in the fourth quarter of 2015 when compared to the previous year, according to the Strawhecker Group. Most within the industry expect that the numbers are significantly higher, considering the fourth quarter only included a few weeks under the new rules. Fraud losses are expected to be much higher for larger retailers:
"Hannah Walker, who handles payment issues for the Food Marketing Institute, said one member of the trade group was hit with $30,000 in fraud costs over a number of days when a counterfeit card was used 'dozens' of times in a store."
According to Boston Retail Partners, only 22% of retailers were EMV ready in February 2016, representing some of the most recent statistics on the subject. The survey found that 53% of retailers planned to implement the capability to accept EMV cards within the next 12 months, with 38% indicating payment/data security was a top priority for the firm. It's interesting to note that less than one in four retailers made the switch, assuming additional liability with inaction, within the first five months. The expenses linked to switching payment-processing systems may seem cost-prohibitive, but with fraud chargebacks mounting for retailers, this shift could come quicker than originally anticipated.
That's not to say that these cards will be significantly more secure than previous cards; rather, it will simply reduce an individual retailer's liability. Hacked credit card fraud will reach $4 billion in 2016, a record level, according to Aite Group. The group believes there will be as much as $10 billion in fraud committed between 2016 and 2020 as the window for hackers to cash in on stolen credit card data from magnetic strip cards closes. That's right: in the short-term, the switch will almost encourage criminals to commit more fraud before newer systems immediately recognize magnetic strip card numbers as fraudulent.
The recent data breaches at Target Corp. and other retailers should make grocery chains wary about delaying the transition to EMV card readers. Just as food manufacturers must now contend with food claim class-action lawsuits, grocery retailers may soon find themselves on the defense against class-action lawsuits claiming they improperly stored consumer data or failed to prevent credit card fraud in the first place. The cost to transition may be high, but the cost of inaction may be higher. Retailers beware.