Tuesday, January 27, 2015

Is a Retailer Revolt from EMV in the Near Future?

Bad group thinking created EMV and now bad group thinking is trying to cram it down the throats of reluctant retailers. Threats of fines, charge backs, increased fees, and the rest of the arsenal wielded by the major players of the payment services industry does not seem to have yielded the expected results. “Wait until fall”, say the bad group thinkers; but an unexpected reaction may revolutionize the retail payment industry.

Small retailers, such as the bodegas, convenience chain stores, and others making rapid small value sales may refuse to originate credit card transactions.  Patrons will start entering their PINs so these retailers do not have to pay for counterfeit card transactions. This natural evolutionary response creates a remarkable consequence, on-line retailers that accept EMV cards will take the brunt of fraud attacks because EMV has no protection against card not present (CNP) fraud.  The EMV boondoggle thus moves the smaller retailers to a more secure solution than EMV at a fraction of the cost. Use of a PIN accompanied by derived unique key per transaction (DUKPT) encryption is the heart of the Chip and Pin solution (the British EMV application).  Small US retailers will employ the exact same technique.

The unintended consequence of bad group thinking creates focused attacks against on-line retailers. Amazon and the rest will bear the brunt of new costs based on issuer losses and thus level the costs for on-line and traditional retailers. People will swarm to Main Street in droves.

Maybe the coming small retailer revolt will have other consequences. Since smaller retailers will not bear the costs of upgrading their point of sale (POS) equipment, and will not pay obscene fines for payment industry stupidity, they will become competitive again with the large national chains. If a hammer costs the same at Joe’s as it does in the Humongous, why not buy it at Joe’s. Walking down the street is healthier than a 20 minute car ride anyway.

Payment technology has advanced beyond the plastic solution and the knee-jerk response to adopt the EMV boondoggle sounds the final death knell for an obsolete solution. Vested interests cannot prevent the Federal Reserve (the US central bank) from creating a modern small value payment solution, much as the lobbyists may try. Maybe if the politicians could stop the Fed as they stopped single payer health solution then EMV would succeed in the US. But the Fed is independent, and lobby proof (although they do seem receptive to new and creative ideas).  Internet and phone companies soon will become the infrastructure providers for payments and the retail world rejoices with lower fees and increased sales.

Next Blog: The new payment system attacks

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