Walmart's complex payments a crash course for new merchant group chief
Everything that touches the payments industry touches Walmart, giving former exec John Drechny a clear view of the rules, tools and trends that are challenging merchants to upgrade quickly to stay competitive.
As the former senior director of payments at Walmart assumes his new role at the Merchant Advisory Group, he'll need every bit of that experience. Drechney became president of MAG in July and will become CEO when outgoing CEO Mark Horwedel steps down on Jan. 1, 2019.
Horwedel, who also was an executive at Walmart and worked in the banking industry, leaves after nearly eight years at MAG, where he helped boost membership from 36 to more than 140 merchants. He also gave MAG a louder voice for merchants at a time when payments are dramatically changing the way consumers and merchants interact.
Walmart has been at the forefront of various payments developments, from occasional skirmishes with Visa over its routing and fee structures, turning away from third-party wallet providers to launch its own Walmart Pay and having a major voice in the now-disbanded Merchant Customer Exchange efforts to create a common consumer wallet based on ACH payments.
Merchants are more payments savvy than they were just five years ago, making the learning curve for MAG members and other merchants much narrower, Drechny said.
"There are several merchants who really understand the payments industry well now, and they are very articulate in what we are trying to accomplish and how we would accomplish it," Drechny said. "It's great, because the broader we can make the voice out there about what the challenges are for merchants in the payments space, the better opportunity to make changes in that space."
The challenges won't change dramatically upon Drechny's move into the CEO role, and he fully understands what they are, having served recently as the chairman of the MAG board.
The merchants' push remains consistent. They want open standards for payments technology, tokenization and other security for mobile payments acceptance and transaction routing. Merchants also want more security that renders the data and information they send back to banks useless to hackers, and they don't want that security to hinder customer experience.
Safe and easy is a common goal for merchants, which don't want to take time away from selling their products to figure out if they are Payment Card Industry security standard compliant, or the layers of fees required to safely support credit card payments. Merchants want to make sure that if the card networks are asking them to spend money to accept new forms of payments and keep them secure, the system is reliable.
"It is expensive to put money into infrastructure and in thinking about that 10 years from now, those merchants ask how to build this infrastructure so that it can still work and be consistent with whatever new technology is introduced," Drechny said.
Getting the point of sale, inventory software and accounting systems all working together is a big job for merchants, Drechny added. "People are looking forward and thinking about what payments will be all about, and that's why I like the discussions around APIs because it gives you flexibility and you can rebuild without having to rebuild everything."
Merchants haven't yet invested in technology to accept and route contactless payment cards in the U.S because of the growing number of mobile checkout options, cloud-based transactions and QR code popularity, Drechny said.
As a Walmart executive, Drechny has seen first-hand how a mobile checkout process can work, as it was implemented in the company's Sam's Club stores.
"Contactless is a good technology, but maybe customers are quickly moving past that, so let's concentrate on where the customer is going," said Drechny, who served in various payments related roles with Walmart Inc. for nearly 20 years
Now a trade group rep, Drechny will be challenged to sustain MAG's strong advocacy, most notable in pushing PIN authorization for EMV credit cards when the transition to chip technology took place in the U.S. in 2015.
MAG has also argued for open tokenization standards, and has questioned any new development that might restrict merchants from routing transactions to the least expensive rails. Visa and Mastercard's single payment button for e-commerce is another concern for MAG, an organization that prizes flexibility in security standards.
"EMVCo is a standards body put together by all of the card brands," Drechny said. "We (merchants) tried to institute a change in EMVCo, but it was a change on what the networks had to do, as we were saying we didn't want the live numbers within the cards."
In reply to merchant objections, EMVCo often reiterates the need to adhere to its mission of making standards for the merchants and not the card networks, Drechny said. "That seems a little odd that you have a standards body that creates standards for merchants, but don't have any merchants that have any say in that standards body," he said.
Merchants desire to have secure payments in place without spending time trying to stay compliant with PCI standards. Merchants want to help shape open standards because they know their customers better than anyone else, Drechny said. "We know how they interact with us in our stores and on our websites, and we want to institute changes that are better for the ecosystem overall and not just driven by business cases."
For many merchants, the transition to EMV chip cards required costly infrastructure upgrades without relief for PCI compliance, according to Drechny. "PCI gives directives in which we can tell them what we like or don't like, but it goes back to the councils and comes out the way we didn't want it," Drechny said of how some standards have been established. "Let's not go halfway, let's get to where maybe we don't have to do all of the PCI compliance.
"Let's get to something more efficient and safe and figure out how to get to that, instead of just saying this is a change in which all of our banks and issuers will have to change something."