Home Depot, Best Buy In Contactless Interchange Fee Showdown
Written by Evan SchumanTwo of the biggest powerhouses in retail today—Home Depot and Best Buy—are about to reflect the yin and yang of the contactless payment struggle, with Home Depot quietly planning on deploying contactless chainwide in about a month. At the same time, Best Buy—an early and prominent contactless advocate, with full deployments from April of last year—is threatening to abandon much of the technology.
Ironically, the same contactless albatross is behind both moves: Visa’s pricing policy that charges a lot more for contactless debit transactions, compared with MasterCard.
Home Depot’s move will quietly start happening in about a month, as it will start to distribute more than 20,000 contactless readers it obtained from Ingenico, more than enough to outfit lanes in all of its 2,238 stores. The full deployment is expected to be complete by the end of the year.
But even though the contactless endorsement of the $71 billion chain is quite powerful and influential, it may well be the ambivalence from the $35 billion Best Buy chain that could have the greater impact.
“I am very concerned about the Best Buy move,” said Philip Philliou, a former MasterCard and American Express executive who now trains on payment issues as a principal with Payments DeepDive. “The Best Buy consumer is the best base to use for contactless. If there are any fast adopters out there, it’s going to be those customers.”
Added Philliou: “Best Buy killing contactless at the POS would be like returning a plasma screen for an old cathode ray tube tv. Why would Best Buy of all retailers go backwards?”
Best Buy, which has been using contactless readers from Motorola’s Symbol group, has been pushing back against Visa interchange fee changes that have the effect of forcing retailers to pay a lot more for contactless debit transactions than for traditional magstripe debit transactions. In a statement issued late Wednesday (July 16), Best Buy said that it “is constantly looking at ways to reduce the cost of check lane tender. As part of this exercise, we are evaluating the continued acceptance of Visa-issued contactless payment cards in our stores in light of recent price increases. However, at this time we have not completed our analysis.”
That’s a clear shot across the bow at Visa, in effect threatening the card brand to either back off its contactless pricing policy or risk losing a lot of Best Buy contactless transactions. Best Buy officials have been talking at industry events about their unhappiness with the Visa contactless approach, suggesting that they might pull back from contactless altogether or that they might merely refuse to process Visa contactless debit transactions.
The Visa contactless issue is, technically, not a difference price for contactless per se. The problem involves a Visa prohibition against allowing a PIN to be used with a Visa contactless debit card and it’s the lack of a PIN option that pushes those transactions into a much higher interchange rate.
Home Depot officials are also unhappy with the Visa pricing move, according to consultants and others working with them closely on contactless, but the chain found that a contactless deployment would make sense given other factors.
-Marc
July 16th, 2009 at 10:14 am
The biggest challenge with contactless in today’s retail environment is that all of the different players involved: Customers, Merchants, Acquirers, Associations, Hardware Manufacturers, etc. all have different motivations for wanting contactless implemented, and those motivations aren’t in alignment.
Just like in the commercials when everything comes to a halt in the store when someone uses cash or check, Visa and Mastercard are motivated by the “Cash is Bad” mantra. The more you use electronic payments, the more money we (Associations) make. If contactless cards can get one-tenth of one percent of cash payments turned to electronic, then it is good for them.
The merchants are looking to enhance speed and improve brand loyalty. The lack of acceptance by the customers are causing those benefits not to materialize. Worse yet, the few customers that are using the technology are causing the merchants to pay higher fees, so they actually hurt the business.
As far as the customers go, I personally don’t think we will see widespread adoption until NFC, or a competing standard, becomes commonplace. Since the carriers, device manufacturers and associations can’t get their act together on who is going to get paid in an NFC world, I’d personally like to see a bluetooth solution created (Thank you Apple and Google) that does an end-run around NFC.
July 24th, 2009 at 10:57 am
For non-micropayments, the contactless card still needs a signature, which is what takes the time. Plus, payment processing is rarely the bottleneck in retail lane throughput. There is no business case for the retailer and its a gimmick for the consumer and yet another clever mechanism for the associations to raise interchange.
July 26th, 2009 at 11:55 am
I find it interesting how these companies are each going about implementing the contactless based system. I wonder how the hackers are going to react to this actually.
Will we see an updated security for those making a purchase.