Visa Inc.’s devotion to signature-based contactless transactions has caused one large retailer to take a stand against the card network, and it also poses an obstacle to adoption of EMV cards in the United States, says an industry analyst.
Best Buy Co. Inc. has made good on threats it made in July to drop acceptance of Visa’s contactless payWave cards because of the interchange rates the network applies to them. The retailer no longer is accepting payWave at its more than 1,000 retail locations because Visa prohibits the use of PINs to authorize the transactions, forcing retailers to accept more-costly signature-based transactions.
While upsetting to some merchants, Visa’s contactless policy also may have broader implications for the U.S. card market.
“Visa insistence on signature is fundamentally what is holding back EMV,” which requires consumers to enter a PIN at the point of sale to complete a transaction, says Nick Holland, a senior analyst at Boston-based consulting firm Aite Group LLC. “I generally believe it’s the biggest barrier there is in the U.S.” to EMV adoption, he says.
It is unlikely EMV will take hold unless there is “some kind of ridiculous skyrocketing of card fraud,” says Holland. “The interchange that [the card networks] get [from signature transactions] far outstrips the fraud reduction that EMV provides,” he says. No card brands or U.S. banks have public plans to adopt chip-based EMV transactions.
Best Buy Drops PayWave
Best Buy began accepting Visa contactless cards in August 2007. In July, the retailer issued a statement expressing dissatisfaction over Visa’s payWave signature policy and the high costs associated with it. Best Buy noted it was evaluating the continued acceptance of payWave cards at that time.
Retailers pay roughly double the amount in interchange fees for a signature-based transaction compared with one initiated with a PIN, notes Holland.
A merchant with 35 million annual transactions could pay a nonnegotiated interchange rate of 0.81% of the sale plus 13 cents for a traditional Visa signature-debit purchase, while the nonnegotiated PIN-debit rate for the same merchant is 0.5% of the sale plus 10 cents, capped at 55 cents.
For a typical $40 transaction, such a merchant could pay 45.4 cents in interchange for a signature-debit purchase, or 30 cents when the consumer uses a PIN.
Merchants pay different rates depending on their merchant categories.
The retailer began no longer accepting payWave cards in October and completed the cutoff in November after discussions with Visa did not produce agreeable changes.
Best Buy declined to say if it believes the company’s actions may help change Visa’s policy. “We make decisions in the best interest of our customers and our business and cannot speak to how this affects a company’s policy,” according to a Best Buy spokesperson.
The retailer had not received any negative feedback from consumers regarding the elimination of PayWave contactless transactions, the spokesperson says.
Best Buy’s actions unlikely will affect the acceptance of other contactless brands, such as MasterCard Worldwide’s PayPass, notes Holland. “This is a one-off battle between Visa and Best Buy,” he says. “I don’t see it spreading much given the low contactless adoption. I don’t think it’s the start of a revolution, probably just a flash in the pan.”
MasterCard Worldwide allows acceptance of its contactless PayPass transactions with signature or PIN authorization at the point of sale, a company spokesperson tells ISO&Agent Weekly. “Best Buy continues to accept MasterCard PayPass,” the spokesperson notes.
Visa ‘Disappointed’
Visa expressed disappointment that Best Buy decided to stop accepting its payWave cards. But Visa also noted the retailer continues to accept Visa cards as magnetic-stripe transactions.
While Visa is “disappointed” Best Buy no longer will offer its customers payWave card acceptance, “it’s important for cardholders to know they can continue to use their payWave card with a traditional ‘swipe’ when shopping at Best Buy” and other merchant locations, Visa said in a statement. “Visa values its longstanding relationship with Best Buy, and we look forward to working with the retailer to grow our mutual businesses.”
However, not all merchants may react like Best Buy to Visa’s interchange rates.
“Visa takes seriously its responsibility to balance value between issuers and merchants,” the Visa spokesperson says. Most merchants “understand how they benefit from” payment cards, she says.
