Discover CIO: Retail Technology Ready for Major Changes

Written by Evan Schuman
August 10th, 2004

Today’s retail payment space is ripe for radical change, says the CIO for Morgan Stanley’s Discover Financial Services Inc. unit. And when radical change happens, it can shake up an industry, and market leaders can find themselves in a market that is much less friendly than before.

“I’ve never seen so much change in a particular space at any one point in time. In Europe, there is a movement mandating the use of chip cards and PINs,” said Diane Offereins, Discover’s CIO and executive vice president. “In Asia, we see lots of examples of different devices making payments: cell phones and proximity kinds of things. The (tender) space is becoming very interesting in terms of an infusion of new technology.”

In global retail, many of state-of-the-art technologies and strategies are tested first in Europe and Asia; a handful of the winners then migrate to the United States. That’s the opposite of many areas of technology and, ironically, it is often because the U.S. technological underpinnings are so strong that there is less of a need to take the risks associated with trying new approaches.

This counterintuitive trend is not limited to retail. In telecommunications, cell phone use and voice over IP dominated in parts of Asia before the United States because the analog phone systems there were considered much weaker. By comparison, therefore, the new technologies were more attractive.

The same scenario is being played out with retail payment/tender technologies.

“The U.S. has such a great online authorization process and the rest of the world isn’t quite as sophisticated. The merchants [globally] are looking for something that will provide some return on investment,” Offereins said. “I think our entire culture is totally conditioned and very comfortable transacting with the mechanisms they have. It’s convenient. It’s a big investment to go out there and take out your whole point-of-sale device infrastructure and replace it with something because it is changing quite a bit.”

Overseas, retailers are comfortable experimenting with various payment approaches “to overcome the lack of a sophisticated telecommunications infrastructure,” she said. “Here, everything is wired and cheap. [U.S. retailers] can authorize a transaction better than anyone else. It’s fast and we can send amazing amounts of data so that we can prevent fraud and do the right job in terms of processing the transaction and giving the data that the merchant needs and making the right credit decisions. The whole infrastructure here is very mature.”

But there are downsides to having a strong infrastructure, such as complacency. “I think innovation comes from a need to overcome an obstacle sometimes. I think the rest of the world, when it comes to processing transactions, has other challenges that we don’t have here,” Offereins said. “We have a lot of mom-and-pop [retailers] that are going to wait for the best thing before they swap out their point-of-sale devices.”

Another downside to having a strong infrastructure is that the substantial legacy systems make it very expensive and difficult to make a transition. The advantage of having little is that there’s little to change and to integrate into.

Because the rest of the world isn’t bogged down with a huge, aging legacy infrastructure, Offereins said, non-U.S. markets can more quickly embrace wireless technologies and improve both reliability and cost-effectiveness.

Offereins made a plea to her fellow CIOs to be open to change even it if means taking chances that are not so comfortable.

“I meet with the CIOs of different retail organizations and there is a tremendous pressure on all businesses to constantly drive out costs. Our constant challenge is to continue to be more efficient,” she said. “Technology changes so quickly that you’re always adopting and testing something new. I don’t think you should get too wed to any one thing because it’s going to change. We’ve had the luxury of point of sale being pretty stable for the last 10 or 15 years.”

She said the only significant change in that time?an eternity for the rest of the technology world?is “that we’ve gotten away from the card imprinters. Everything is electronic in terms of the whole reseating process and the ticket retrieval. The whole process is now electronic and there is no paper that flows around any longer.”

If the U.S. is going to remain globally competitive, retailer CIOs must be more willing to experiment and try new approaches, which is what Discover is trying to do with biometrics. “I think you need to get out and try lots of different things because you’re not going to know if it’s going to work or be appealing if you don’t test it.”


Comments are closed.


StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

Most Recent Comments

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...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.