PYMNTS’ Data Dive: Strange Bedfellows Edition — Card Networks, EMV And Retail

Times laden with change are said to make for strange bedfellows — something the weekly cavalcade of unusual pair-ups we cover day in and day out can testify to. However, last week’s news indicates that perhaps a line should be added to that expression: Changing time also makes for unexpected adversaries. Players one might think would be on the same team — or, at least, have similar interests — as of this week, seem to find themselves on surprisingly opposite sides of the issues.

On the EMV front, Home Depot decided it felt strongly enough about chip-and-PIN that it sued MasterCard and Visa over it. Walmart Canada decided it would stop accepting Visa cards since it says they are too expensive.

On the cheery side of the news, in the same week, Visa announced new protocols to get the EMV train moving faster and give merchants relief on chargebacks in the interim.

Home Depot — Another EMV Lawsuit Joins The Party 

Home Depot doesn’t think the “chip” cards on offer today in the United States are living up to the hype — the hype being the security levels enjoyed by European merchants who are currently using EMV. In the U.S., the verification method after dipping the chip is still a signature, as opposed to a PIN.

And according to the Atlanta-based building supplies retailer, that flaw is putting both customers and retailers at risk. Those, at least, are the allegations in a new federal antitrust lawsuit filed last week against Visa and MasterCard.

It’s the latest large retailer to raise the security concerns, with a lawsuit filed this week in U.S. District Court in Atlanta.

Last month, Walmart filed a lawsuit in New York alleging that Visa prohibits Walmart from insisting that its customers use a PIN when paying with a chip-enabled debit card at checkout.

Its claim is that this puts both customers and the retailer at risk of security lapses.

Home Depot has been a strong advocate of EMV technology since becoming a target of the wave of data heists that began with Target’s pre-Christmas 2013 attack.

Home Depot’s 2014 data breach at stores in the U.S. and Canada affected 56 million debit and credit cards, far more than the attack on Target customers. Hackers also stole 53 million email addresses from Home Depot customers. Home Depot pushed hard to activate chip-enabled checkout terminals at all of its stores after the 2014 attack, but it argues that, in the absence of the PIN technology, the system fails to meaningfully improve customer security.

Visa and MasterCard contend that this is an inaccurate argument due to technological advances in EMV.

“Regardless of how the cardholder’s identity is confirmed, the chip makes data much more secure, rendering it almost useless to create fraudulent cards or transactions,” MasterCard spokesman Seth Eisen said in a statement on Wednesday (June 15).

At issue, however, is more than the consumer’s wellbeing and security. There is money on the table. Retailers pay more on signature transactions than they do for PIN payments — roughly $.05 more, on average. Because EMV gives customers the option to sign on all transactions — debit or credit — that can change what fees retailers are paying by a material amount. For example, over 70 percent of Walmart’s chip-based transactions are debit, and giving customers the option to sign instead of key in their PIN is a big deal.

“[Visa] 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,” Walmart said in its lawsuit.

Walmart and Visa, of course, have a longstanding history of strongly (and powerfully) disagreeing over fees. In fact, that story got its latest chapter this week — in Canada of all places.

Visa, It’s Everywhere You Want To Be, Unless You Want To Be In A Canadian Walmart 

Walmart Canada has decided that what it pays to Visa in interchange is too high, and so it will not accept Visa cards at its stores anymore. According to reports by Toronto Star, Walmart will phase out Visa gradually.

Visa has responded that, as of now, Walmart is already receiving “one of the lowest rates available to any merchant in the country.”

Visa will start going dark locally in mid-July in the Ontario area and will radiate out from there. The goal will be to switch off Visa at all 400 locations nationwide.

The rates in question, according to the Visa Canada website, are 1.42 percent to 2.08 percent, which is higher than the rates charged, by way of example, through MasterCard, which come in at 1.2 percent for merchants, with a minimum net purchase volume of at least $3 billion (a threshold Walmart Canada would cross easily).

Visa is currently the largest payments network in Canada with 50 million cards in circulation. All in, those cards ring up $232 billion in transactions, according to the most recent annual data. Walmart’s Canadian operations will continue to accept Discover, Amex and MasterCard.

But it may not get that far. Walmart Canada noted that it wants to “reach an agreement” with Visa that would make some headway toward lowering the fees charged at those locations in Canada, reported Toronto Star.

For its part, Visa has responded: “We regret Walmart’s decision to no longer accept Visa at its Canadian stores and the negative impact their decision will have on loyal shoppers across Canada. Walmart made this business decision despite Visa offering one of the lowest rates available to any merchant in the country. We are disappointed that Walmart chose to put their own financial interests ahead of their own consumers’ choice.”

It’s an interesting — and very public — negotiating strategy.

Visa Simplifies Retailer EMV Transition

While Visa is pleased with the progress so far in the U.S. EMV migration over the last seven months, with 300 million chip cards in circulation and 1.2 million EMV merchant locations, it is also the first to admit more needs to be done to make more retail locations ready to accept all those cards. And that starts with simplifying the certification process so that merchants can more quickly activate the EMV terminals that may already be sitting on their counters waiting to accept chip cards.

And so, last week, Visa announced that it will begin to roll out its plan to accelerate EMV certification.

“Visa recognizes the importance of having the industry help merchants get their chip terminal solutions up and running quickly so that everyone, especially consumers, can benefit from the powerful security protection of chip technology,” said Oliver Jenkyn, group executive of North America for Visa. “We’ve taken steps to simplify the process as much as possible and help reduce any challenges so merchants can move forward with chip adoption quickly.”

To make that happen, Visa will: (1) streamline testing requirements, (2) amend and simplify the terminal certification process, (3) provide technical expertise and funding to acquirers and VARs and (4) change the chargeback rules for merchants that are not yet chip-ready.

Streamlined terminal testing, in this case, means that Visa has simplified its testing requirements to significantly reduce the complexity, time and cost of implementation. Visa has also opened up a path that allows acquirers to “Self-Certify,” meaning Visa will give acquirers greater discretion to determine the appropriate level of testing required to ensure a merchant’s solution is ready.

In addition, Visa is investigating a system for acquirers to share certification test results with each other to avoid testing duplication. The idea being that what consistently works one place will consistently work in another, and thus if certain merchant configurations have already proven to be well-functioning, then other acquirers should be aware of this and take it into consideration as they make their decisions.

Visa’s new measures also include funding to support migration, which means Visa will be upping its financing support for acquirers and VARs that develop the software to power chip terminals. That funding will both help some VARs and acquirers with specific resource needs, but more importantly, the funding will also mean software can be pre-certified in a manner that will lower subsequent testing.

Finally, Visa is modifying its policies to limit the number of transactions issuers can charge back to merchants (and their acquirers). As of July 22, 2016, Visa will block all U.S. counterfeit fraud chargebacks under $25, as those chargebacks tend to create a lot of cost and work for merchants and acquirers, with “limited financial impact for issuing banks.” As of October of this year, Visa will also limit issuers to 10 fraudulent counterfeit transactions per account. After that point, the issuer picks up liability.

Those two changes will remain on the books until April 2018. They are there as Visa acknowledges that there are many merchants in the process of upgrading to EMV that are delayed for a variety of reasons, and those merchants shouldn’t be shelled with chargebacks during that time.

Visa estimates these two changes will cause merchants to see 40 percent fewer counterfeit chargebacks and a 15 percent reduction in U.S. counterfeit fraud dollars being charged back.

MasterCard – not to be left behind – announced its version on of a more streamlined EMV process just as this week’s news cycle is kicking off. MasterCard is announcing today that it is reducing the volume of tests that it requires of terminals before bringing them into the field as certified to enable chip card payments.

In addition, MasterCard will modify its chargeback policy to limit the number of chargebacks that issuers can shift to each merchant, with no difference between card-present fraud or card-not-present fraud in terms of liability protections.

So, what did we learn this week?

This week had two main lessons. The first is about swipe fees, and it is a pretty obvious one. Walmart does not like them, at all. Never will, and it will make all efforts to fight them wherever they exist. Possibly for the rest of time.

The second is about EMV, and it is more hopeful than one might think. On the downside, it is filling the nation’s merchants with feels not best described with the word joy. On the other hand, it does seem to be moving forward and may even actually get easier.

And it’s still less than a year in.