Wal-Mart Stores Inc. will not support U.S. contactless payments anytime soon.
The nation's largest retailer plans eventually to begin accepting EMV chip-and-PIN cards in the U.S., but supporting domestic contactless-payment is out of the picture, according to a top Wal-Mart exec.
Contactless card acceptance could help pave the way to consumer adoption of mobile payments through Near Field Communication chip-equipped devices, some payment industry experts say. And while Wal-Mart is participating in "a very limited test" of contactless acceptance in 25 of its stores in the United Kingdom, Wal-Mart generally does not favor contactless payment.
"My advice to merchants is, save money and don't focus on contactless, just worry about contact (EMV) card readers," Mario de Armas, Wal-Mart senior director of international payments, tells PaymentsSource in explaining Wal-Mart's EMV position.
Visa Inc. last year laid out a series of incentives for card issuers and merchants over the next several years to adopt more-secure EMV chip card technology that is standard in most global markets (see story).
One of the lures Visa offers merchants is the opportunity to bypass costly annual audits to comply with the Payment Card Industry Data Security Standard beginning this fall if at least 75% of a merchant's Visa transactions originate from chip-enabled terminals.
"To qualify, terminals must be enabled to support both contact and contactless chip acceptance, including mobile contactless payments based on NFC technology," Visa said in detailing the incentives (see details).
That is not a big enough lure for Wal-Mart, which because of its size has ongoing heavy investments in securing payment card data, De Armas says.
And minus such an incentive, Wal-Mart sees no point in supporting contactless payment in the U.S.
"I think what Visa is trying to do is build a bridge to mobile," but "in my opinion contactless NFC is not the way to go," de Armas says. "From a merchant's perspective, a lot of contactless initiatives in the U.S. have been turned off and are going nowhere."
Moreover, de Armas believes NFC contactless chips have the capability of storing payment card data, which could be a security risk.
"Whether it is stored on a piece of plastic, in a keychain or in a mobile phone, an NFC contactless chip card is not secure," he says. "Why should a merchant or issuer invest money in a more expensive [service] that is not even secure? Dynamic credentials that get authenticated in the cloud seem to be a much more secure [option], and some of these would not require merchants to upgrade their hardware."
De Armas and certain other large merchants, including Home Depot Inc., also oppose the approach some banks are taking to EMV in the U.S. by issuing chip-equipped cards that require only a signature for authentication (see story).
"A signature is a worthless form of authentication," de Armas says. "If it had any value you'd let people use their signatures to withdraw money at ATMs, but you don't see anybody doing that. If you want to have true reduction of fraud, EMV must be chip-and-PIN."
MasterCard Worldwide has not specifically ruled out signature-only EMV, but the network appears to be leaning toward the chip-and-PIN route (see story).
Observers say it is too soon to tell which direction the U.S. will go on chip-and-PIN versus chip and signature.
"There is an incredible amount of confusion," Tony Hayes, a partner with Oliver Wyman, tells PaymentsSource. "The networks can't agree on whether EMV means PIN or signature-only, and issuers are in a wait-and-see mode."
No question PIN is a "more secure" approach, but the situation in the U.S. is stuck in a stalemate, Hayes notes.
Merchants indeed are making "a lot of noise" in favor of PIN, but it is not clear yet which approach will win out, Douglas A. King, payments risk expert at the Federal Reserve Bank of Atlanta, tells PaymentsSource.
PINs clearly provide superior security compared with signatures, but from an economic point of view, King is unsure the higher costs for issuers and merchants to implement the more elaborate PIN technology outweigh the benefits.
Data suggest EMV technology alone eliminates some 53% of counterfeit card fraud, King says. PIN-based EMV also helps prevent losses from lost and stolen cards, which represent about 25% of card fraud.
"Is it worth the extra significant cost and change in consumer behavior to tackle the 25%?" he asks.
Visa, meanwhile, is doing away with signatures entirely on more credit card authentications.
Beginning in October, Visa will increase the limit for not requiring a signature to $50 from $25 for Visa transactions at discount stores and supermarkets, with plans to expand the policy to other merchant categories over time, Visa's CEO Joe Saunders said last week (see story).
The program has been available to the majority of merchant categories in the U.S. since July 2010 for purchases up to $25.
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