Merchants, banks, fintechs and card networks may crave digital payments' treasure trove of data over cash's simple anonymity, but any weakness in a centralized ecosystem threatens the entire network, as Visa learned late last week.
Visa's Friday card processing outage, in which a relatively small hardware problem was felt across Europe, has breathed new life into the movement behind cryptocurrency, blockchains and other distributed ledgers as a solution to the massive downstream impact resulting from a single processing problem at a global card network.
Blockchains, or distributed ledgers, come with their own data management risks but are theoretically harder to bring down because they do not have a single point of failure, as evidenced by Bitcoin's reportedly near perfect record of uptime.
Since bitcoin is nowhere near being a short-term option for decentralized in-store payments beyond some fringe cases, Visa glitch will more likely accelerate the use of distributed ledger technology — without bitcoin attached — in the financial services industry. Blockchain can distribute performance risk and improve backup redundancies so consumers and merchants don't even know when the network has a problem.
The World Bank, for example, reports distributed ledgers potential use as a way to improve payment and settlement systems, among other financial services tasks, despite the technology's regulatory and environmental concerns.
Mastercard and Visa have invested in blockchain for marketing and international processing purposes, and are coming under pressure given the centralized payment networks' dominance and the potential for broader outages in the future. It's also likely Visa and Mastercard will face competitive pressure to build their own decentralized backups.
Visa did not comment beyond its public statement. Mastercard, which was not impacted by Friday's glitch, did not respond to a request for comment by Monday morning New York time. But some sort of response to guard against a potential global shutdown is likely in the offing given the negative attention and the potential of a larger breakdown to have even worse results in the market.
Friday was also a stinging — if temporary — defeat for the "war on cash." The silver lining: Visa's outage lasted less than a day due to a hardware failure, rather than the result of criminals exploiting a scary security vulnerability. The glitch also didn't affect the entire card network.
But it was still enough to draw global attention.
Millions of people were left unable to pay across parts of an entire continent. The stories of retailers using old-fashioned paper slips to manually record payment information for consumers in crowded supermarkets, stranded travelers unable to pay for tickets on a busy Friday afternoon, banks encouraging what amounts to a run on ATMs, and long waits for customer service are a bad look for Visa, which in the recent past has offered to pay retailers to not accept cash.
"We all expect electronic payments to operate like utilities without interruption," said Mark Horwedel, CEO of the Merchant Advisory Group, in an email. "Our lives can be severely interrupted when they fail. Prolonged failures can cripple economies. Unfortunately, experience has demonstrated that no electronic payment system is infallible. They all require back-up and multiple routing options with clarity of choice and transparency of costs."
The uncertainty—cards worked in some stores but not others, or contactless transactions worked in some cases but not others—is the absolute last thing a card network wants, even for a few hours.
The entire point of a card network is to enable payments without consumers having to think about it, not having to dig through their wallets or purses for cash, or having figure out what kind of method works at which store. It's why Visa and Mastercard are pushing for a single experience for online payments, and it's why contactless mobile wallets that rely on competing platforms have not taken off.
"Our goal is to ensure all Visa payments work reliably 24 hours a day, 365 days a year. We fell short of this goal...and we apologize to all of our partners and Visa account holders for any inconvenience that this may have caused," said Visa CEO Al Kelly in the card brand's public statement.
Like retailer data breaches, most consumers aren't going to care which brand didn't work, but will care about a perceived vulnerability in the overall industry model. So Visa's outage exposes a shortfall of the high-pressure digital migration that impacts the entire card industry. All card networks have the same goal as Visa of eliminating cash, which is the main competitor for Mastercard too.
Starbucks and Shake Shack have opened stores that do not accept cash, and no-cash stores are increasingly common in Australia and Sweden. And governments such as India have blamed the anonymous nature of cash payments for crime, giving them an excuse to pull huge sums of paper money out of circulation.
And while no-cashier stores such as Amazon Go and the proliferation of mobile order-ahead apps are not outright bans on cash, they have the same goal. These processes are de facto cash prohibitions that are prone to ourtages if the remote, hosted technology that supports the stores fails or shuts down.
And there are other non-technical challenges to a cashless or no-cashier model. Writing for PaymentsSource, Andrew Wind, principal product manager at Worldpay, argued consumers are interested in the flexibility, convenience, speed and access to other services that cash-free omnichannel payments and shopping provide. But that interest is balanced by a discomfort of the technology being thrust upon them, or being a stick instead of a carrot.
But moving backwards into a more cash-dominated system is not viable. Since the migration toward a more digital "invisible" payment system is inevitable because of the value of the data provided by a less anonymous digital payment system, it's the contingencies that will have to improve.
"Systems are best decentralized and should consist of multiple competing entities which together ensure redundancy and diversification as well as aggressively compete to provide the most cost-effective and dependable solutions," Horwedel said.