Sam's Club plans to launch a cash back program for a new co-branded MasterCard that will also leverage EMV-chip technology, providing some much-needed momentum for the EMV migration in the U.S.
"The thin edge of the EMV wedge is beginning to occur," says Jordan McKee, a senior analyst at Yankee Group. "Retailers have begun to understand that for better or worse, EMV will become a reality in the U.S. and steps much be taken to prepare for the liability shift."
Under Sam's Club 5-3-1, cash incentives will be provided for payments made with a co-branded MasterCard chip card issued by GE Capital Bank. The program, which starts June 23, will be available to certain members of the Sam's Savings, Sam's Business and Sam's Plus programs in the U.S. and Puerto Rico. MasterCard recently signed an agreement to process the store-branded credit cards for Walmart, Sam's Club's parent company.
EMV cards improve security over magnetic-stripe cards, which are easier to counterfeit, but they require different hardware at the point of sale. The U.S. card brands set a deadline of October 2015 for EMV acceptance, after which most companies face a shift in fraud liability if they cannot handle chip-card payments.
Walmart has long been a proponent of EMV technology, which will also be available to Walmart cardholders this fall, says Tara Raddohl, a Sam's Club spokesperson, in an email. By the end of 2014, chip-enabled point of sale terminals will be active at all U.S. Walmart stores. Sam's Club locations in the U.S. and Puerto Rico can already accept EMV cards, Raddohl says.
The initial Sam's Club cards will support PIN payments but will primarily verify users by signature. The next generation of the cards will start to require PIN verification when issued next year, Aaron Berger, an external spokesman for MasterCard, said in an email. Both Visa and MasterCard allow issuers to choose between chip-and-PIN or chip-and-signature authentication for EMV cards, though MasterCard leans toward PIN security, while Visa leans toward signature-based authentication.
Walmart's rival Target is fast-tracking the addition of EMV to its own store-branded card with MasterCard, and the moves by both national retailers may expedite EMV migration at other merchants that issue store-branded cards.
"What's most important is that we have both Target and Walmart moving to EMV on their store branded products, which is a clear indication that they will be actively promoting chip-card use in-store," says Rick Oglesby, a senior analyst and consultant at Double Diamond Payments Research. "That will certainly put some pressure on other issuers to get on board."
Some retailers have balked at the shift to EMV, saying the cost of supporting the technology is not outweighed by the reduction in fraud. Sam's Club's move is a step in the right direction for the retail industry, but the full EMV migration will still take time, McKee says.
"I imagine the true catalytic even will come after October 2015 when merchants that have not made updates to EMV realize that they have become the point of least resistance" for fraudsters to attack, McKee says. "Fraud will migrate to those merchants still relying on antiquated magnetic stripe technology."
Sam's Club's card provides 5% cash back for fuel, 2% for dining and travel, and 1% for other purchases, with a $5,000 annual cash back limit. Sam's Plus members will also be automatically enrolled on June 12 to receive $10 for every $500 spent, regardless of payment type, through a program called Cash Rewards, which exists in addition to 5-3-1. The Sam's Club MasterCard has no annual fee or Sam's Club membership requirement, and can be used at other merchants who accept MasterCard.