North America set for payment revolution

[Article published in The Review (Fall 2011) by Elliot Davis]

Visa’s backing of chip technology signals the beginning of a new era for US banks and retailers

The North American payment system could finally be on the verge of adopting digital payment technology. The global payment giant Visa has unveiled plans to increase its promotion of conta0ct and contactless chip technology in the US – a move that looks set to be a trendsetter.

Visa’s attempt to promote next-generation EMV payment technology consists of three initiatives. First, from 1 October 2012, any US retailer that ensures that 75% of its transactions occur via chip-enabled terminals, which facilitate both contact and contactless payments, will be exempt from the annual validation of its security standards. Second, Visa is demanding that all back-office acquirer processors and sub-processor service providers in the US support chip transactions by 1 April 2013.

Finally, the firm has announced a shake-up of liability in terms of fraudulent point-of-sale transactions. Historically, when someone has used a counterfeit card to purchase goods or services, the card issuer has tended to absorb the subsequent financial liability. From 1 October 2015, in instances where the retailer does not have appropriate chip technology, the financial responsibility will instead be passed to the merchant acquirer – in other words, the organization that authorized the transaction.

Combined, these measures look set to have a significant effect on the US card payment market – simultaneously creating an incentive for retailers to adopt new technologies and strong-arming back-office service providers into compliance.

"By encouraging investment in EMV contact and contactless chip technology, we will speed up the adoption of mobile payments, as well as improve international interoperability and security," said Jim McCarthy, Global Head of Product at Visa. “Near-Field Communication [NFC] mobile payments and other chip-based emerging technologies are poised to take off in the coming years, so we are taking steps today to create a commercial framework that will support growth opportunities and create value for all participants in the payment chain.”

Visa’s statement is the latest in a number of recent announcements indicating an imminent revolution of payment processes in the US.

In May 2011, for instance, a number of retailers signed up to trial Google’s Google Wallet technology. Bloomingdale’s, Subway and Toys“R”Us, among others, are taking part in the SingleTap scheme, which is initially focusing on stores in and around New York City and San Francisco. Shoppers in these areas can purchase goods, redeem offers and earn loyalty credit simply by touching their smartphones against in-store readers.

Underpinned by NFC, contactless payment solutions have, until now, met with a certain degree of inertia in the US.

In the UK, however, fast-food giant McDonald’s has already confirmed that all 1,200 of its outlets in the country will soon accept payments through contactless debit and credit cards for low-value purchases. Several other UK retailers, meanwhile, have signed up to a scheme that allows customers to make purchases up to the value of £15 (€17.10) using their smartphones.

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