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ISIS Collides With Magstripe’s Dominance

April 11th, 2012

The idea that magstripe is so well-entrenched in U.S. retail didn’t seem possible when word of the Google and ISIS mobile wallet efforts first started leaking out in 2010. Of course NFC-equipped smartphones would have the wow factor necessary to get consumers using them at the POS. The oversold idea of consumers getting rid of their wallets always sounded like hype, but moving payment cards into phones seemed very practical.

Based on the Google Wallet results, ISIS apparently no longer believes that’s going to happen. And after a string of shifts in its business plan—it started with plans to run its own end-to-end payments network, and several shifts later now positions itself as just a “technology provider”—this time ISIS is adjusting in a way that’s clearly lined up with reality.

What Chip-and-PIN and contactless first demonstrated, Google Wallet has now proved—and ISIS is watching it rapidly approach, as well. The dirty little secret of payment cards is that there’s no demand for a change from consumers, store managers or associates, or even retail IT.

Enabling more phones with NFC won’t create that demand, despite Google’s fondest hopes (remember, most consumers now carry contactless cards they only use with the magstripe). Building a massive infrastructure to support it won’t create the demand, no matter how much ISIS wishes that were true. Even financial incentives for EMV transactions won’t move this needle, although Visa and retailers’ finance departments wish that were so.

What will do it? For a start, checkout-counter POS systems that don’t actually make a swipe easier than any other form of payment, and in-store mobile POS systems that don’t make a swipe the only option. Training for associates is probably a hopeless proposition, unless associates actually get a bonus for successfully encouraging customers to tap instead of swipe—which may not be such a crazy idea.

As for ISIS, it may now be down to three choices. It can keep working to reduce expectations for mobile payments—although once expectations get low enough, no one will use mobile at all. Or it can make sure its retailers’ POS terminals still support magstripes, but don’t effectively promote them by making them easier than anything else.

Or ISIS can forget about NFC and work with smartphone makers to add a pop-out magstripe to every phone. Yeah, that’ll work.


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Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
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