MasterCard’s Retail Data Grab: Forget PayPal, It’s About Chains

Written by Frank Hayes
March 26th, 2013

MasterCard (NYSE:MA) wants your customer data. That’s the bottom line when it comes to the new fee that the number-two card brand will start slapping on PayPal, Google (NASDAQ:GOOG) and other digital wallet operators in June. It’s not really about digital wallets, which represent a tiny fraction of big chains’ transactions. MasterCard just wants to put pressure on anyone who might keep customer data out of the hands of itself and its issuing banks.

Wait—isn’t losing control of CRM data the biggest reason chains aren’t wild about digital wallets in the first place? Wasn’t everyone worried that Google might somehow share transaction data with a chain’s competitors? Apparently, that fear was well-founded—just misplaced. It turns out the people who will do anything to grab CRM data are the card brands and issuers.

MasterCard’s new charge, which gets the train-wreck of a name “Staged Digital Wallet Operator Annual Network Access Fee” (SDWOANAF), made its first public appearance in February, when PayPal parent eBay (NASDAQ:EBAY) described it in an SEC filing. Details are sketchy, but SDWOANAF apparently applies only to credit transactions (not debit) and only to digital wallets that use a cloud-style arrangement where the wallet operator stores the card number on its systems, instead of storing the card number directly on a smartphone. So PayPal, Google and possibly Apple (NASDAQ:AAPL) get hit with SDWOANAF, but Isis doesn’t.

That “staged” arrangement means MasterCard and its issuers will only get data on exactly what customers bought secondhand, through the wallet operator, instead of directly from the POS. MasterCard is willing to strong-arm the wallet operators with a fee (it’s tiered based on last year’s transaction volume, but one source says it’s 35 basis points) in an attempt to get them to cough up everything MasterCard used to receive from a regular POS transaction.

If you’ve wondered how much other people want your CRM data from transactions, wonder no more.

Let’s be clear: For the moment, most of the chatter about this situation has been focused on PayPal, which is the only third-party wallet with a really big footprint online or in-store. It’s also the one wallet operator that MasterCard North American President Chris McWilton called out at a financial conference two weeks ago.

“PayPal rides for free on the back of other business models,” McWilton told Credit Suisse Global Services Conference attendees. “So they ride on the back of the networks for a card-funded transaction. They ride on the back of ACH, which is owned by the banks. And I think they’ve got to be cautious that they don’t get too big and start making people wake up and say, ‘Wait a minute. I’m actually losing business here because of your moving into the physical space.'” (That’s from a Nomura Equity research note, quoted by NFC World.)


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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...
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...

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