EPC Chairman of the Board, Jeff Tassey, published an op-ed on Morning Consult about how consumers can protect themselves from e-skimming.
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EPC responded to a card payments article in the Washington Post by Mary Hardar on September 11, 2019 entitled, “Think your credit card is safe in your wallet? Think again.”
“It strikes me as odd that the article omits available and important new technologies that shift liability to card networks while combating millions of payment criminals. Electronic payments make it possible for businesses to sell to customers all over the world through e-commerce. Through Secure Remote Commerce, the online payments environment is secured with tokenization and AI technology which makes it easy for small businesses to provide a smooth checkout experience,” stated Jeff Tassey, Chairman of the Board of the Electronic Payments Coalition.
Contrary to claims that all harm falls on small businesses, networks in fact incentivize retailers by freeing them from liability when they adopt new, innovative technologies that protect themselves and consumers— one network recently launched a program that is specifically designed to secure small business. SRC and AI technology also saves retailers money by avoiding false declines and abandoned shopping carts.
“In reality, card networks continue investing billions towards advancing payments technology to fight fraud and protect consumers,” said Tassey. “Unfortunately, retailers continue to not partake in the same developments, or join the fight at all, which contributes to the lag in improvements needed to combat the ever-evolving threats in the payments environment.”
Card networks and financial institutions are preparing for the future of payments by expanding their investments into artificial intelligence (AI) and machine learning to quickly identify instances of fraud. Unfortunately, retailers have yet to show the same amount of dedication when it comes to investing in payments technologies of tomorrow, hindering innovation and leaving consumers at risk of future data breaches.
From the shift to EMV-enabled payments cards and the rapid expansion of contactless transactions to the latest in tokenization and biometrics, investments in the future of these emerging payments technologies will only better serve the demands of consumers, retailers and card networks. So why won’t retailers invest? The problem is PIN.
When we think about artificial intelligence (AI) and machine learning, the first image that comes to mind might be a chess-playing computer or a driverless car. In addition to such futuristic applications, these cutting-edge technologies are already changing and enhancing many aspects of our day-to-day lives, including how we make purchases and protect our valuable financial information.
Consumers today are increasingly demanding more flexible ways to pay when they buy goods and services, from groceries to car washes. As a result, card networks and financial institutions have made enormous investments in developing lightning-fast and secure ways for customers to pay for goods and services, many of which rely on machine learning and AI.
Electronic Payments Coalition (EPC) released a report today on the value of debit and credit card rewards programs for merchants and consumers across all income levels. The report highlights that the vast majority of consumers own at least one credit card, including nearly two-thirds of adults earning less than $40,000 per year. This report shows that more than 90% of all credit cardholder spending was charged to rewards cards in 2016, and consumer preference for spending on rewards cards versus non-rewards cards holds true across income groups, with lower-income cardholders using their rewards cards for more than 70% of their spending.
The report also shows that rewards cards provide a host of benefits for merchants. Through a phenomenon known as “ticket lift,” where debit and credit card transactions are 2-4 times larger than cash transactions, and, relative to a non-rewards consumer credit card, rewards cards are associated with an average transaction size that is 25-60% higher.
“This report stands in line with what we’ve been saying since the Durbin Amendment was signed into law. The vast majority of consumers across all income levels use credit cards and prefer to use cards with rewards programs because of the value they provide, whether through convenience and security or by earning cash-back, airline miles, or hotel stays,” said Jeffrey A. Tassey, Chairman of the Board of EPC. “Retailers continuously criticize rewards programs for their higher interchange fees, when, in reality, the benefits outweigh the costs through increased sales, lower costs, faster transactions, and prompt and guaranteed payments. In fact, retailers often operate their own in-store rewards programs to drive net spending by incentivizing consumers to participate through lower prices and discounts at the shelves.”
The report also describes the dynamics of a two-sided market where a platform or service serves multiple end-users, which in the case of rewards cards includes cardholders and merchants. EPC found that the value derived from using the electronic payments system depends on the extent to which both groups participate. Ultimately, the price to participate balances the need to attract merchants with the need to increase the number of cardholders.
To view EPC’s Report on the value of rewards, click here.
In the past week, multiple experts have offered insight into the failings of the Durbin amendment since its enactment seven years ago. Here’s what they had to say:
J.W. Verret, associate professor of law at George Mason University, spoke to the measure’s shortcomings for The Hill:
“In 2011, the Federal Reserve adopted rules implementing fee caps on debit card transactions, pursuant to the Dodd-Frank Act of 2010. These rules have led to diminished access to credit products for consumers and have failed in their promise to lower consumer debit fees. The last eight years have shown this to be a failed experiment.
Studies by the Federal Reserve Bank of Richmond demonstrate that the Durbin amendment didn’t even fulfill its intended purpose. Retailers simply kept the cost savings. Thus, the Durbin Act merely reflected a very successful act of lobbying by retailers.”
In The Daily Caller, Andrew Wilford, who is a policy analyst for the National Taxpayers Union Foundation, had this to say about retailer and regulator intervention in the card market:
“After the Durbin Amendment capped debit card swipe fees, a Federal Reserve Bank of Richmond report found that 98.8 percent of retailers either kept prices the same or raised them. And a Federal Reserve Bank of Boston report found that rewards benefits generally exceed any price discounts that retailers can provide for using debit or cash.
While retailers claim their effort to strong-arm credit card providers is pro-consumer, the reality is that the best thing is to keep courts and legislators out of this argument. Credit card companies should have the right to refuse their service to retailers that don’t abide by certain conditions, such as avoiding steering practices and honoring all cards.”
More than half of voters feel they have not received a discount from retailers since the Durbin amendment went into effect seven years ago, despite retailers’ promises otherwise, according to new Morning Consult data. As such, a plurality of voters believes the amendment should be repealed if savings aren’t being passed along, consistent with consumers’ views in 2017.
“Year after year, retailers continue to harm consumers by failing to pass along promised savings—to the tune of six to eight billion dollars each year—while obstructing data security legislation establishing standards for all parts of the industry.,” said Jeff Tassey, chairman of the board of the Electronic Payments Coalition (EPC). “As we hit another unfortunate milestone with the Durbin amendment, it’s time retailers put their customers over profits in all areas of payments.”
The Durbin amendment, passed as part of the Dodd-Frank Act, placed price controls on interchange for debit card transactions. This nominal fee contributes to the cost of maintaining the complex electronic payments system, including processing and authorizing card payments. Since 2011, consumers have lost out on perks like free checking and debit card rewards in order to offset the price controls.
Moreover, a 2017 report from Javelin Strategy & Research found small merchants are more concerned about value, not price, when it comes to debit card interchange. A majority of small merchants were satisfied with what they pay and are even happier “when they are allowed to choose additional benefits even at a greater cost.”
“The electronic payments industry remains committed to providing consumers and businesses with many choices to pay and encourage retailers to do their part in adopting new technologies,” said Tassey. “As the industry continues to lead on creating secure, convenient ways to pay, we look forward to working with consumers to make the checkout process fit their needs. However, Congress must look out for consumers’ and merchants’ best interests and remove unnecessary government intervention—like the Durbin amendment—in the marketplace to ensure important innovation can take place.”
To view EPC’s infographic on the polling, click here.
Morning Consult, on behalf of the Electronic Payments Coalition, conducted an online survey of 1,979 registered voters from September 11-13, 2018. Results from the full survey have a margin of error of +/- 2 percent.
The availability and convenience of electronic payments hinge on them being a secure method of exchanging money. For now, consumers are still willing to use these technologies, but retailers risk eroding trust in commercial institutions with their lack of security preparation.
Consumers expect the retail and payments industries to move forward together in developing safer, more secure technologies that will protect consumers from the intrusion and disturbance of fraud. Clearly, the data breaches of the past few years have made an impact on consumer attitudes, and they are becoming more vocal. Retailers must decide if they will heed this call and do the right thing by investing in the security we need today and the innovation of tomorrow.