This week, Visa began campaigning to get retailers in the U.S. to upgrade their payment terminals — what we used to call cash registers — to devices capable of reading EMV chips, the technology behind “chip-and-pin” cards now standard in Europe, and so-called NFC chips, which are beginning to be installed in smartphones so customers can make purchases using nothing but their mobile devices.
It’s a big push, and as the largest network processor in the U.S., Visa very well may have the clout to get merchants on board. But is this something that a typical consumer ought to care about?
Well, it’s good news for tech-savvy shoppers who look forward to the idea of turning their smartphone into a wallet, as well as international travelers frustrated when their credit cards don’t work on trips abroad.
It’s also a potential boon for merchants because the technology makes spending even more effortless and gives them a brand-new channel to broadcast their marketing messages to consumers.
EMV cards, which are standard pretty much everywhere in the world outside the U.S., are more secure than the magnetic strip cards we use in the U.S. But they haven’t caught on here because merchants haven’t wanted to spring for terminals that can process them without a critical mass of cards in circulation. Likewise, banks haven’t wanted to issue those cards without a system in place to process the transactions made with them. Merchants are also reluctant to make the investment because of the assumption that payments via smartphone will eventually supplant those done with a physical debit or credit card.
On the other hand, retailers are eager to embrace mobile payment technology like NFC because access to consumers’ cell phones will open up a whole world of marketing opportunities, says Sanjay Sakhrani, an analyst at investment bank Keefe, Bruyette & Woods.
By bundling EMV and NFC capability together in their campaign, Visa hopes to make the transition more attractive to merchants, especially because they would only have to pay for one upgrade that could take them through the next two phases of payment evolution.
Visa is adopting a carrot-and-stick approach to coax stores into installing the new terminals; starting next year, merchants will get a break on some of their security expenses if they process most of their transactions using the new system. But by 2015, the stick comes into play when Visa will start shifting the liability for fraudulent charges from the banks that issue cards to the bank that processes charges for the merchant. “That has been a proven method to accelerate adoption,” says Mark Nelsen, senior business leader of fraud risk products at Visa.
It’s certainly time for the U.S. to catch up to the rest of the world in payment technology. “There’s a broader trend across the world as more countries are moving to EMV technology,” says KB&W’s Sakhrani. “That puts pressure on the U.S. to try to move forward as well.” Canada just finished a switchover from magnetic stripe to chip cards, and Mexico is rapidly adopting the chip model, too. As the last holdout, the U.S. is vulnerable to an influx of fraudsters from other countries who want to exploit the relative insecurity of our system.
According to Dennis Moroney, research director of bank cards at market research firm TowerGroup, the other reason Visa’s moving on this now is that smartphones are proliferating, along with potential competitors in the mobile-payments space. (Google’s partnership with MasterCard on an Android-based mobile wallet is one example.)
The potential convenience for consumers is significant, but what about the cost? Visa says it’s up to the merchants not to warehouse data that could identify you or otherwise compromise your privacy. It’s also well-documented that paying with plastic instead of cash leads shoppers to spend more. “From the consumer’s point of view, it’s a convenience. It also drives up the average ticket,” says TowerGroup’s Moroney. People on a budget will need to be vigilant that more convenient credit cards or their smartphones don’t give them an “out of sight, out of mind” mentality about how much they’re spending.
Finally, there’s a liability issue for consumers. Visa says it’s chip cards wouldn’t necessarily require a pin. But if, as in Europe, chip-and-pin cards become the norm here in the U.S., you could expect companies to be less generous with their “zero liability” policies. Since a thief would need to both steal your card and know your PIN to make a fraudulent purchase, it’s much more difficult to make a fraudulent transaction. But if you had a slip of paper in your wallet with the PIN written on it or if you gave the number to someone unscrupulous, you could be responsible for any fraudulent charges.