NEW YORK – Consumers’ options for payment methods are expected to grow in the coming years, as retailers around the country embrace new technologies as well as increased security measures, according to a recent article in The New York Times.
The article goes on to describe the many factors that will influence these changes, from the oft-discussed issues of the security of new cards and the convenience of mobile payments, to other less visible issues such as companies’ jealous guarding of customer data and the enormous revenue potentials at stake.
Every time a customer pays with a credit or debit card, the retailer pays a fee to have the payment processed. According to the Nilson Report, a payment card trade publication, merchants in the United States spent $71.7 billion on these fees last year.
The most immediate change could occur with chip and PIN to keep thieves from using stolen cards..
Visa and MasterCard are pushing EMV technology, and have instituted new rules that say retailers will bear more fraud liability by the end of next year if they do not have the capability to process these cards. Meanwhile, retailers are hoping that the move to chip and PIN would reduce interchange and other processing fees, with more competitive and potentially cheaper networks that process PINs instead of signatures, or eventually from savings if fraud rates declined, according to the Times article.
Retailers like Starbucks have already seen great savings through their mobile payment programs: Instead of paying for 10 cups of coffee individually, customers can put a lump sum on their phone just once — which means Starbucks has to pay only one transaction fee, not 10.
Several leading retailers, including Walmart, Target and Gap, have also banded together to form a group called the Merchant Customer Exchange, known as MCX, which aims to come up with a mobile payment system of its own. MCX would allow retailers to circumvent the credit card companies, tapping directly into customers’ bank accounts. Retailers said they would also then retain control of their customer data, rather than having to share it as they might if customers paid with a service like Google Wallet. However, despite being announced nearly two years ago, MCX has yet to unveil a working product.
Chris McWilton, president of North American markets at MasterCard, pointed to failed efforts by mobile telephone companies to develop payment networks some years ago.
Credit cards have cautioned the retailers against underestimating the security risks.
Nonetheless, the MCX effort speaks to their continued distaste for the so-called processing fees.
The article quotes Jordan McKee, an analyst at the Yankee Group: “The core motivator behind MCX is a deep-seated hatred of interchange fees for credit and debit cards. On the surface it looks like a means for merchants to engage with customers, but it’s really about shifting consumers to a less costly means for paying for goods and services.”
The animosity between retailers and credit card companies is no secret, as evidenced by past interviews in which Mallory Duncan, the general counsel for the National Retail Federation, called Visa and MasterCard a “duopoly” and some of their behavior “devious.”
Experts caution that any reduction in fees is far from certain. The pace of change to mobile, on the other hand, is almost guaranteed to be a crawl, due to reluctance to change from both consumers and banks.