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At first blush, you might well wonder why anyone would be against loyalty programs. Whether you earn points by shopping at a particular store or by using a particular credit card, you are rewarded for your loyalty. Maybe you exchange your points for a discount on airfare for a sun-filled vacation. It’s all voluntary, and everyone involved seems to benefit.
Inside the Beltway, a battle has been raging for close to a decade pitting retailers against America’s credit card companies, better known as Visa V -0.38%, MasterCard MA +0.00% and American Express AXP +1.43%. The fight has occurred on different fronts ranging from cyber-security to interchange fees, the fees retailers pay to allow customers to use credit cards. In 2010, with the enactment of the Dodd-Frank bill, which contained a retailer desired cap on debit card fees, many believed the retailers would declare victory and go home but it appears they are back seeking another bite at the crony capitalist apple.
Last week The Hill ran a piece by Merchant Payments Coalition Chairman and National Retail Federation SVP Mallory Duncan, in which he asked Congress to adopt a European model of price fixing and give big box retailers a multibillion handout at the expense of American consumers. For those who have been following the payments industry for the past decade, his demand for government price fixing of credit interchange rates – the fee that merchants pay to accept credit cards — will come as no surprise. What makes this demand so remarkable is the fact that it blatantly ignores the failures of these policies in the U.S. and around the world.
They say that imitation is the sincerest form of flattery—and a corollary to that adage is the idea that if you want to be successful, you look at someone who has achieved success and build on how they got there. The opposite, of course, is to imitate folks who are less successful and think, somehow, that this is a recipe for success. Yet that seems to be what some folks continually call for when they want the U.S. to be “more like Europe” economically—Europe, whose socialist and quasi-socialist policies have led to complete economic stagnation. Although the American economy has experienced slow growth in recent years, the numbers show that our growth far exceeds the growth experienced in Europe. One reason is that American consumption rates are at far higher levels than in your average European nation.
Over the past few months all payments stakeholders have taken a major step forward in payments security. Millions of Americans have received chip cards and thousands of retailers have taken steps to turn on chip readers, making those cards virtually impossible to counterfeit. Instead of a applauding this step forward, a small number of retailer trade associations have instead focused their efforts on mandating the use of PINs to authenticate transactions. This single-minded campaign has generated bemusement among security experts who recognize that PINs would not stop merchant breaches, like those at Target, Home Depot or Michael’s and that PIN fraud has increased threefold between 2004 and 2012. And now, it is increasingly clear that this campaign doesn’t even align with the positions and experiences of many of the retailers who belong to these trade associations.
Unfortunately, not everyone in the payment ecosystem is prepared for the growing threat of cyber-criminals. With the holidays fast approaching, we need to be mindful of any grinches that may be lurking. One only needs to look at the recent large-scale retailer breaches which compromised millions of consumers’ sensitive information for proof that the criminals are on the prowl and the cyber defense status quo isn’t good enough. While there has been a rise in the number and sophistication of data breaches, no federal standard for protecting consumer data at retailers and other non-financial firms currently exists.
A recent column by Penny Crosman on whether cards with newer chip technology should be paired with a signature or PIN, for added security, came down squarely on the side of using PINs. But the article overlooked a key fact in the debate: neither is the most important defense against fraud. It’s the chip that matters.
The use of distractions in politics has skyrocketed in the past few years as candidates and others have realized how effective it can be to get the media talking about something else – anything else – when it’s you that’s under the glare of scrutiny. The strategy is often called “look, a squirrel!”, an allusion to the Pixar film Up in which dogs’ conversations are instantly paralyzed when any canine participant observes (or thinks he may have observed) a squirrel.
Last week U.S. House Small Business Committee held the second part of a hearing entitled “The EMV Deadline and What it Means for Small Businesses,” which was supposed to address payment security in the United States. Instead of providing Congress with useful information about how to help small businesses protect consumer data, large national retail associations used the hearing to push for a “security” solution – PIN – that wouldn’t have done anything to stop the breaches at Target, Home Depot or Michaels and won’t have a meaningful impact on overall payments fraud. Lost in this charade was the fact that the migration to EMV chip cards and the activation of chip readers by merchants is a critical step in further improving consumer protection. We’ve already seen tremendous progress; 60% of cards are expected to be chip-enabled by the end of the year, and half of all chip payment volume … Continue reading
Congress is an intentionally deliberative body. It was structured by our founders to ensure collective participation in shaping government policy, and sometimes that allows certain factions to disrupt the legislative process purely for their own self-interest. Such is the case with the retail industry sidelining the debate over data security by resuscitating tired and largely settled complaints over the transition to EMV chip technology. As ICBA recently testified before the House Small Business Committee, community banks are in a good position to help small businesses make the switch to EMV technology. The transition itself has been underway since 2011. And the Oct. 1 liability shift has come and gone with banks and merchants diligently moving toward implementing EMV. But rather than entering into a substantive dialogue about the limitations of chip technology and collaborating on further improving consumer security in an era of data breaches and cyber-threats, retail industry lobbyists … Continue reading