View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. News
January 12, 2010

Visa’s contactless push suffers setback due to US merchants

The payment industrys push towards contactless payment has seen payment networks, issuers, retailers and technology vendors unite in a concerted effort to roll out the technology worldwide, but it appears that in the US, some merchants are willing to use contactless as a stick to beat the networks and issuers over the contentious issue of interchange. US home entertainment retailer Best Buy, which has 1,023 outlets, signed up to accept Visa contactless payments in August 2007 and Visa was not shy about using Best Buy as an example of the attractiveness of its contactless proposition. But over recent months, Best Buy has become one of several major retailers to become increasingly vocal over Visas requirement for merchants to accept signature authorisation for contactless payment, rather than PIN authorisation which carries a much lower level of interchange and therefore lower revenue for issuers.

By Verdict Staff

The payment industry’s push towards contactless payment has seen payment networks, issuers, retailers and technology vendors unite in a concerted effort to roll out the technology worldwide, but it appears that in the US, some merchants are willing to use contactless as a stick to beat the networks and issuers over the contentious issue of interchange.

US home entertainment retailer Best Buy, which has 1,023 outlets, signed up to accept Visa contactless payments in August 2007 and Visa was not shy about using Best Buy as an example of the attractiveness of its contactless proposition.

But over recent months, Best Buy has become one of several major retailers to become increasingly vocal over Visa’s requirement for merchants to accept signature authorisation for contactless payment, rather than PIN authorisation which carries a much lower level of interchange – and therefore lower revenue for issuers.

Best Buy’s intentions were in evidence as early as July 2009, when it released a statement saying that it was evaluating its continued acceptance of Visa-issued contactless payment cards in its stores in light of recent price increases.

Despite negotiations with Visa, by November Best Buy had stopped accepting Visa contactless debit transactions in all of its stores, with the retailer justifying the decision on the basis of the cost of contactless transactions being processed as signature debit transactions.

However, the retailer is still accepting Visa magnetic stripe card payments and contactless payments from rival networks MasterCard and American Express, which allow PIN-authorised contactless payments.

The move appears to have taken Visa by surprise, as the network was still touting Best Buy as accepting its contactless proposition as of early January 2010.

Nick Holland, a senior analyst at US payment consultancy Aite Group, told CI: “The biggest obstacle to EMV adoption in the US is not the estimated $12 billion price tag for replacing all cards and POS sale terminals, but the deep reluctance of card networks to move from signature-based payments to PIN.

“As evidenced by Best Buy’s decision to stop signature contactless, the networks will cling to signature interchange as long as they possibly can, even to the extent of it killing the value proposition of speed and convenience for emerging products such as contactless cards.”

Move could spur on other retailers

Although several major retailers have also been vocal about the Visa signature restriction, none have yet used contactless as a weapon to threaten the networks over interchange, although Best Buy’s move could galvanise them into taking similar measures – something which would not only put the brakes on Visa’s contactless push, but would also open up another merchant front against the payment networks over interchange.

Recent questions over the security of contactless will not have helped to sway retailers into accepting the technology. On 11 January, the Australian state of Queensland launched an investigation into a security breach affecting its contactless public transport ticketing system, operated by TransLink, which involved the load amount of one person’s card being incorrectly transferred to another person’s account of the same name.

The state government has blamed the error on a call centre operator failing to follow security protocols, with transport minister Rachel Nolan saying: “The integrity of the balance transfer system is critical and a breach of security protocols like this is absolutely unacceptable. I have directed that the breach be fully investigated by both the call centre operator and by TransLink.”

However, the shadow transport minister, Fiona Simpson, says the incident has raised concerns about the security and integrity of the system.

But elsewhere, the contactless push continues unabated. In the UK, telecom operator Orange and Barclaycard have launched a co-branded contactless credit card on the MasterCard platform, following a strategic partnership signed by the two companies in March 2008 to promote the development and adoption of contactless and mobile payment services.

The card also allows customers to manage their budgets, put blocks on card spending online, abroad or for high value transactions, and monitor their spending via automated SMS alerts.

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A weekly roundup of the latest news and analysis, sent every Wednesday.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to Electronic Payments International