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Revolt Over Interchange: Home Depot, Wal-Mart Lead Way

Written by Evan Schuman
March 8th, 2012

In the same month that Home Depot is moving its PayPal mobile-payment process chainwide, the home improvement superstore—along with more than a dozen of the world’s largest retailers, including Wal-Mart and Target—is signaling its dissatisfaction with all of the current mobile-payment options by agreeing to fund an alternative. This retailer-owned effort has a lot of dollars to make its dreams come true, with more than $20 million pledged and more than a trillion dollars in combined revenue to funnel to the preferred approach.

But the group—composed largely of the chains’ financial types—has the same hurdles that have weighed down so many industry consortium: potential infighting among the leading players; legal obstacles; the need to build a massive infrastructure, given the intent to shun current networks; and the tech questions, such as whether this new approach will have any better luck at mastering security than today’s efforts.

“This all sounds vaguely familiar. Oh, yes. I believe ISIS had a similar ‘vision’ and $100 million,” said Randy Vanderhoof, executive director of the Smart Card Alliance. ISIS “found out quickly that ‘it ain’t easy.'”

Through conversations with various participants in the organization—which does not yet have a public name—the advantages and challenges of the effort each appear to be monumental. At the heart of the movement is retail frustration with mobile payments, which initially fueled hopes of a radical new payment order.

In the same way that the business popularization of the Web in the mid-90s rewrote retail and software rules and briefly threatened to topple software giant Microsoft, some had hoped that mobile would rewrite payment rules, reshaping (or even destroying) the dreaded interchange payment system, customer-favoring dispute resolution, information security, CRM data sharing and even the burdens of PCI. Put another way, a chance to topple the card brands, especially Visa and MasterCard. Triple especially Visa.

Said one participant in an early organizing meeting of the group: “We’re only going to get one chance in our lifetime to make a major difference, a major change in payments. And mobile is it,” the participant said. “It all boils down to busting the interchange system.”

Remaking those elements—security, interchange, data-sharing, dispute resolution and PCI—in a much more retailer-friendly way is what is driving the group. What makes this alliance of retailers potentially much more powerful—and effective—than earlier business groupings is the money. But like so much else here, the money specifics are amorphous, when they are being discussed at all.

Companies are joining at various levels, with various levels of pledged dollars, and the total pledged dollars are said to be in the “tens of millions,” with a goal to raise $100 million. But a pledge is very different than cash. One participant described the amount pledged as an “as much as” figure, with the money there when the member company believes there is a need for that cash.


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