Major U.S. merchants are ready to deploy EMV chip-and-PIN card technology as the strongest barrier against point-of-sale card fraud, but card issuers and networks are blocking their path, Jamie Henry, director of payment services at Wal-Mart Stores Inc., said this week at the Smart Card Alliance’s annual meeting in Scottsdale, Ariz.
A government-forced reduction in interchange rates could help spur the U.S. adoption of chip-and-PIN payment technology, he suggested.
U.S. card issuers are loath to disrupt the existing model because if chip-and-PIN transactions were to become the standard, as it is elsewhere in the world, issuers would lose significant revenues from signature-based credit and debit card interchange fees, Henry contended. “Issuers and networks are married to signature interchange, and as long as that continues ... (it is) hindering U.S. adoption of chip-and-PIN technology,” Henry said.
Merchant acquirers pay interchange to card issuers and pass the expense on to their retailer clients as part of the discount rate. U.S. merchants claim credit card interchange fees cost them $48 billion in 2008. And a longstanding industry debate over interchange erupted again this month as the Senate approved an amendment to the financial reform bill that would regulate debit interchange rates. PIN-based transactions generally cost merchants less than signature-based transactions, although the gap is narrowing (
Henry suggested that a reduction in interchange rates might be the catalyst needed to push U.S. issuers and merchants to broad EMV adoption. “Lower interchange would push the industry toward chip-and-PIN (adoption),” he said. “We would see more financial institutions become interested in controlling fraud. It would be more difficult to pass (fraud) costs on to merchants.”
Wal-Mart is a “strong advocate” of chip-and-PIN technology globally and within the U.S, Henry said, noting point-of-sale fraud rates plummeted in markets that have adopted the EMV technology. “As far as we’re concerned, signature (transactions) are a waste of time. Transactions need to be PIN or nothing,” he said.
All of Wal-Mart’s U.S. payment terminals are enabled to accept chip-and-PIN transactions, Henry noted. But because major U.S. card issuers and networks do not yet support EMV transactions, Wal-Mart has no incentive yet to develop the software and other payment-processing technologies the transactions require. “We have the hardware, but we don’t have the software for chip-and-PIN,” he said.
Wal-Mart is “trying to work with some of our issuers (on) chip-and-PIN, to try to help move that technology forward,” Henry said, conceding that so far Wal-Mart has no specific plans to move to chip-and-PIN technology. General Electric Co.’s GE Money Bank issues Wal-Mart’s private-label credit card and a general-purpose credit card co-branded with Discover Financial Services; both cards are signature-authorized.
Retailers are waiting for “clearer direction” from card issuers and networks before making any deep investments in chip-and-PIN EMV technology because their resources are spread so thinly, Richard Mader, executive director of the National Retail Federation’s Association for Retail Technology Standards, said during the panel discussion. “Retailers spend less than 1% of their budgets on information technology, and as long as there is uncertainty from issuers about chip-and-PIN, retailers will hesitate.”
A solution might be reached if merchants and issuers joined forces to create a national “roadmap” around chip-and-PIN, contactless and mobile-payment technology, Dodd Roberts, president and CEO of the Merchant Advisory Group, said during the panel discussion. “Merchants need some direction; we would like to participate in a discussion (with issuers) about the future of payment technology,” Roberts said.
The Irving, Texas-based advisory group is a “cross-industry association of large merchants ... seeking partnership between merchants, acquirers, payment companies and banks.” Roberts said.
Wal-Mart’s Henry concurred. “We want a seat at the table (with issuers) to help make those decisions. Right now the industry is so fragmented, and (progress) is held up by issuers and networks,” he said. “Let’s get a roadmap.”
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