By Brett Conradt, Ratna Gogineni, and Kathryn Suarez
Consumers are making the transition to EMV chip-enabled cards and will soon come to value enhanced payment security, a meaningful part of customer retention for retailers. In the long term, EMV chip-enabled cards should help protect retailers and banks from widespread data breaches, but near term this could cause some confusion at checkout. Retailers can ease the pain of transition by training their cashiers to proactively advise consumers to 'dip' instead of 'swipe' when appropriate.
This holiday shopping season presents an opportunity for EMV compliant retailers to tout secure payments while educating consumers along the way.
Why the confusion?
Consumers already have a variety of payment options to choose from this holiday season, including cash, debit/credit and mobile payments. But this year, it becomes even more complicated with EMV chip-enabled cards. Spikes in credit card fraud and highly publicized data breaches have led to mandates that banks introduce EMV chips to all credit and debit cards by Oct. 1, 2015. These EMV chip-enabled cards have superior built-in defenses against fraud that make it much more difficult to duplicate than the magnetic stripe cards.
Retailers have also been ordered to outfit their point-of-sale devices to accept EMV chip-enabled cards. However, while major retailers like Target, Walgreens and Costco have begun accepting EMV chip-enabled cards, smaller retailers have been slow to implement the change due to the large investment in updating the machines, as well as a reported shortage of terminals from Verifone and Ingenico.
As a result, only about 27 percent of U.S. merchants were ready to accept chip-enabled cards by the October deadline, according to The Strawhecker Group. By the end of the year, that's expected to rise to 44 percent.
Further, banks have been slow to replace consumers' magnetic stripe cards with the new chip-enabled cards. A CreditCard.com survey completed in early September found that 60 percent of Americans had still not received the new chip-enabled cards. Confounding this issue, Stax research shows that as of November, 36 percent of consumers don't know whether they even have a chip-enabled card or not.
Who will educate consumers?
It is clear that consumers need to be educated on when and how to use EMV chip-enabled cards. Most consumers (55 percent) think the responsibility to educate consumers on the use of EMV chip-enabled cards should fall with banks. But in reality, only 15 percent of consumers believe their education has come through banks. More commonly, a third of consumers (33 percent) were taught by retailers, and 28 percent were 'self-taught'.
Fair or not, making sure consumers use their EMV chip-enabled cards properly is falling on the shoulders of retailers—and specifically cashiers. Cashiers are the only ones with consumers at the point of sale and are going to be forced into 'real-time' training. Based on Stax research, there is significant opportunity for retailers to improve, as only 37 percent of consumers believe their cashier was knowledgeable regarding EMV chip technology.
Most critically, retailers need to make sure all their cashiers know how to recognize and use chip-enabled cards, and then proactively communicate to consumers who face different scenarios based on the card they decide to use (chipped or not) and the retailer they are shopping (EMV-compliant or not). This is no small task, considering that many cashiers during the holidays are seasonal, temporary hires. Retailers should also be touting the fact that they accept chip cards—and therefore protect their customers' data—as part of their marketing campaigns, as well as with signage at checkout.
How will consumers react?
Research shows that consumers will adapt—45 percent of the consumers Stax surveyed found the process of dipping their chip-enabled cards confusing the first time and noticed longer wait times. But as they became accustomed to dipping their cards, they found that the new checkout process takes only six seconds longer on average. Again, retailers can help move lines along by ensuring that their cashiers are properly trained to direct consumers on whether to dip or swipe.
Consumers like the additional protection the chips provide. Thirty-seven percent feel safer with an EMV chip-enabled card, and 64 percent think that the transition to EMV is a good thing long term. EMV cards are seen as being the most secure way to pay, with 75 percent of consumers viewing them as more secure than mobile payments and magnetic stripe cards that need to be swiped.
In the end, there is going to be some pain in the checkout line this year for holiday shoppers. However, while there is some uncertainty around usage of EMV chip-enabled cards, consumers are willing to trade off slightly longer lines in exchange for the enhanced security that EMV chip-enabled cards offer.
Brett Conradt is director at Stax Inc., Kathryn Suarez is a senior associate at Stax Inc., and Ratna Gogineni is an associate at Stax Inc.