Walmart and Visa have had a long and volatile relationship, and the retailer's latest lawsuit against the global card brand gives voice to a struggle that many other companies are too small to fight.
In the courtroom and in other venues, Walmart has often had the task of representing the retail industry in its fight for lower fees or more control of transaction data. In this instance, Walmart may be the one speaking up against Visa's EMV authentication policies, but it is far from the only company concerned.
Visa's promotion of signature authentication for EMV transactions allows banks to forgo the use of a PIN for EMV cards issued to U.S. consumers. This decision was meant to facilitate the spread of EMV cards in the U.S., but it eliminates a protection against stolen card use, adds potential costs for merchants and puts the U.S. at odds with other countries' EMV practices.
"Visa has acknowledged in many other countries that chip and PIN offer greater security," Randy Hargrove, a Walmart spokesperson, said in an emailed statement. "Visa nevertheless has demanded that we allow fraud-prone signature verification for debit transactions in our U.S. stores because Visa stands to make more money processing those transactions."
Visa did not respond to inquiries for this story by deadline, but it has long portrayed PIN as an authentication method that had been surpassed by more modern payment technologies. When announcing its EMV migration plan back in 2011, Visa talked up the advancements in other forms of transaction security and the impending arrival of Near Field Communication-based form factors such as mobile wallets.
But Walmart's disputes with Visa go back much longer than the beginnings of the U.S. EMV migration; the two companies have been engaged in court battles for over a decade.
In the latest lawsuit Walmart says the card brand is forcing the company to route transactions to Visa, rather than on alternative and less expensive PIN debit networks.
Walmart opted out of the high-profile $5.7 billion class action settlement over swipe fees between major retailers and Visa and MasterCard Inc. in late 2013 — what would have been the end of a court battle that began in 2005 — turning right around in March of 2014 and filing its own $5 billion lawsuit against Visa over its fees. That claim was settled out of court last year, and neither Visa nor Walmart shared details of the settlement publicly.
As for the debit routing issue, Walmart is not alone in stating that the card brands should not dictate where transactions should be sent, pointing to Durbin amendment's rule about allowing multiple routing options on debit transactions.
The Merchant Advisory Group, long at the forefront of those lobbying the card brands for PIN adoption with the migration to EMV chip cards in the U.S., has said all along that debit routing should be the choice of the merchant and in accordance with Durbin amendment regulations that call for two or more networks being available.
"It is not up to the networks or the card issuers, even though EMV has programmatically made it more difficult for merchants to exercise their routing rights," said Mark Horwedel, CEO of the Merchant Advisory Group. "It's certainly not surprising that merchants want to minimize their outrageous cost of acceptance as well as avoid the costs associated with chargebacks."
Merchants say that if they had to bear the costs of replacing their point of sale hardware to support EMV, they should have the option to use PIN authentication to protect against a wider range of fraud. EMV protects against card counterfeiting, but merchants note that a lost or stolen EMV card could still be used with a fraudulent signature.
Although the U.S. card brands agreed on their timeline for EMV migration, they are not all aligned on the merits of signature authentication. Discover CEO David Nelms recently said the industry "may be missing an opportunity" by not going with the higher level of security that PIN authentication provides.
In the meantime, the transition to EMV has had some drawbacks of its own. Merchants are facing a rise in chargebacks that they argue is not entirely related to counterfeit card fraud. And consumers complain of longer transaction times when using EMV cards; Visa and MasterCard plan to address this concern with a software update.
There has been no doubt over the past few years about where the various debit networks have aligned themselves in regard to EMV debit card routing, particularly under the Durbin amendment's call for providing merchants a choice of two or more networks so as to potentially have a less expensive option available.
In the meantime, the independent debit networks have continued to work to provide more application identifiers (AID) for routing EMV transactions to go along with what issuers normally have on their debit cards now — the agreed-upon common AID as well as the AID for the network brand on the card.
Thus, any request or requirement from a card brand to bypass PIN for signature authentication seems to eliminate many of the options that have been painstakingly put in place.
It's possible Walmart may not be entirely interested in fraud or a short-term desire for less expensive routing options with its latest salvo against Visa, said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.
"Walmart wants a PIN option on all transactions because it sets the stage for multi-factor authentication with mobile wallets, particularly Walmart Pay, in the future," Crone said. "It would be hard for the networks to maintain a card-not-present rate on a mobile payment that has layers of authentication and a payment token."
Walmart announced the Walmart Pay mobile app this year as a key part of its digital technology strategy, while also sending a signal that it wasn't going to wait on retailer-driven Merchant Customer Exchange, of which it remains a member, to deliver its customer-facing mobile wallet. Part of MCX's original mission was to design a mobile wallet that allows retailers to retain control of transaction data.
Whether Walmart's lawsuits against Visa will give it the freedom it desires remains to be seen, Crone said. The retailer might be better served in focusing on developing its mobile wallet and other consumer-facing technology as a way to apply competitive pressure to Visa and MasterCard, he added.
Jeremy Gumbley, chief technology and security officer for Creditcall, says that Visa wants to provide customer choice between signature and PIN during the EMV migration, but also empathizes with retailers wanting a return on their EMV investment.
"For a retailer the size of Walmart, this could cost it dearly, and all the while its consumers receive only part of the protection EMV can offer," Gumbley said in an email. "Not exactly a win-win for either party."