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Will Best Buy’s Pushback Against Visa Contactless Payment Change The Market Or Is It Irrelevant?

Written by Evan Schuman and Fred J. Aun
January 14th, 2010

When Best Buy kicked Visa contactless payment out of its stores, some gave the $35 billion chain kudos for standing up to the world’s largest card brand on the sensitive topic of interchange rate. But how truly gutsy was it? Will it make any difference at all?

Visa on Friday (Jan. 8) issued a statement confirming the Best Buy move, which is very interesting given that Best Buy itself has yet to go on-the-record. Visa chooses to not comment on a huge number of payment issues, so why would it comment here? Why would it want this story of its contactless system being yanked out to get eyeballs a nanosecond longer than necessary?

When we first heard that Visa was issuing a statement, the only assumption we could make is that Visa would make an argument to the retail community saying that either the attributes of the card make the higher charge justified (yeah, that would likely be awfully persuasive to retailers) or that Visa will now be more flexible on the interchange fee terms with its contactless cards.

Of course, Visa did neither, which really forces the question of why it did choose to issue the statement.

(Related Story: Discover: Contactless Payment Sticker Users Inadvertently Crippling Performance)

The two-sentence Visa statement said: “While we’re disappointed Best Buy will no longer offer its customers the convenience and speed of Visa payWave, it’s important for cardholders to know they can continue to use their payWave card with a traditional ‘swipe’ when shopping at Best Buy and millions of other merchant locations worldwide. Visa values its long-standing relationship with Best Buy and we look forward to working with the retailer to grow our mutual businesses.”

On the Best Buy side, though, many attendees at the National Retail Federation (NRF) conference were wondering whether the change would have much of an impact at all. Contactless payments are responsible for an extremely small percentage of Best Buy’s revenue and Visa contactless (Best Buy is still accepting contactless cards from MasterCard, Amex and others) is an even smaller percentage yet. And given that Visa contactless customers can still shop at Best Buy—all a consumer has to do is swipe the card instead of waving it—it wouldn’t even significantly alienate customers.

One attendee compared the move to a hypothetical apparel retailer that is furious about children working in overseas sweatshops. To put an end to it, the apparel retailer would tell the supplier, “That’s it! No more. I want you to take the pink frilly tuxedos with the Mod Squad characters sewn into the chest and get them out of here and don’t bring me any more pink frilly tuxedos with the Mod Squad characters sewn into the chest until your suppliers have changed their practices. You can bring me lots of other clothes, but I am now drawing the line at pink frilly tuxedos with the Mod Squad characters sewn into the chest. It’s for the children.”

That all said, there is no shortage of major retail chains that are using Visa contactless cards and are not happy about the interchange policy from Visa. Will Best Buy’s pushback give it the backbone (or a similar body part that starts with the same first couple of letters) to also stop accepting payWave unless Visa changes its policies? And if some other major retail chains do push back, will that force Visa to relent and lower its contactless fees? (One Best Buy potential fear: That its move will help improve the negotiating position of its rivals, in effect giving its competitors better financial terms.)

Dave Hogan, the CIO of the National Retail Federation and a longtime vocal opponent of the ways the brands handle interchange fees, said he believes that Best Buy’s stance will almost certainly force Visa to blink. (I know that it’s Chase’s contactless card, but cut us some slack.)

Best Buy “is drawing a line in the sand” because the next step will be direct mobile payments and that’s potentially the bigger argument, Hogan said. “This is significant, forcing you not to do PIN. Other [major retailers] will follow.”


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