From four to 88.
That’s the jump in chargebacks the owners of Miami Springs, Fla.-based B&R Supermarket claim to have seen when comparing four and a half months in 2014 to the same period after last October’s “liability shift” date, when credit-card companies pushed the burden of EMV fraud to retailers.
For B&R, the chargebacks totaled $10,000, despite the company having made the required upgrades, according to a lawsuit the four-store grocer recently filed against the major card companies.
Across all channels, the agony that began with millions of dollars in new Europay MasterCard Visa (EMV) equipment and upgrade costs ballooned into millions of dollars more in fraud-related charges sent back to retailers (known as chargebacks) and subsequent fees. It has left some petroleum and convenience-store retailers wondering when the torture will end, and if they’ll have any resources left when the smoke clears.
Any inch of wiggle room may prove critical as the whole concept of currency expands to include digital coupons, loyalty points, price rollbacks, concert tickets, even Hulu time.
The era of wallets and pocketbooks could become history before you know it.
“Speed of the transaction, as well as the exchange of customer preferences, will make the digital wallet the preferred payment method for most everyone less than a decade from now,” says Scott Hartman, president and CEO of Rutter’s Farm Stores, York, Pa. “We think the digital wallet fits right into our customers’ lifestyles.”
Here’s what’s in play:
- EMV—the “gift” that keeps on giving. So-called “chip cards” have become commonplace, thanks to Wal-Mart and Target. It’s an equipment burden many retailers have come to accept [CSP—Nov. ’15, p. 99], but the slow-moving certification process across the payment pathway has meant a significant, often dubious increase in chargebacks.
- Beyond the green. With mobile phones unleashing new customer-engagement opportunities, loyalty programs and other types of digital rewards have expanded the idea of currency to include the most ancient form of commerce: barter, with phone numbers, experiences and goodwill as valuable as cash.
- Disruption and ownership. As payment and affinity intertwine, the digital battle shifts its focus to the customer—or, more specifically, who “owns” Joe or Jane. The branded app that consumers use to pay may ultimately win as their go-to icon, to the detriment of all others. That’s why merchants, telecoms, phone manufacturers, banks, acquirers and credit cards, plus tech pioneers and anarchists alike, are desperately vying for a spot along the payment path.
In the short term, EMV may be the convenience channel’s single greatest handicap, not just as a tangled mess to resolve inside the store now and very soon at the pumps, but also as a significant time suck.
How retailers navigate the coming months may dictate who profits—and who will have to cash out.
Table of Contents
Chipping Away at EMV
The Dawn of Payment Disruption
Mobile Pay: How It Works (an Infographic)
Loyalty and Digital Coupons: Tomorrow's Currency Toolkit
The Fuzzy, Not-So-Far-Off Future of Currency
Mobile Metrics: Where Consumers Stand
Chipping Away at EMV
Mike Lindberg of CHS Inc., Inver Grove Heights, Minn., is beefing up his company’s chargeback reviews because the company has seen a growing number since last October’s EMV-liability shift. While speaking at the recent Conexxus technology standards conference in Tucson, Ariz., Lindberg, director of payment solutions for the 1,400-store chain, said retailers across all channels are feeling the pain.
Citing numbers from the Minneapolis-based Merchant Advisory Group, he said smaller retailers are reporting as much as $10,000 to $15,000 a week in increased chargebacks. Larger chains are seeing $1 million a week.
“I can’t imagine what will happen at the pump come October 2017,” he said, referring to when fraud-liability shifts will move outside to include in-pump point-of-sale (POS).
Fortunately for some, major oil companies are providing a reprieve for in-store chargebacks. One Midwest retailer, who asked not to be named, says his fuel supplier is paying for chargebacks while certifications get finalized. He is equipped to take EMV but can’t turn it on due to the delays.
(As a side note, many observers believe the certifications could never have been completed in time for retailers to be EMV-ready by October 2015, because the standards body governing EMV, Foster City, Calif.-based EMVCo, did not release its specs until the fall of 2014—a perilously short amount of time for product development.)
Still, chargebacks have prompted at least two lawsuits: the B&R Supermarket class-action suit and another one in which Wal-Mart is suing Visa over “chip-and-signature” allowances. At the same time, U.S. Sen. Dick Durbin (D-Ill.) has sent out two legislative inquiries. In separate letters, Durbin asked the Federal Trade Commission (FTC) and EMVCo questions about the sluggish certification process.
In a letter dated May 11, 2016, the senator requested Edith Ramirez, chairperson of the FTC, give “prompt attention and oversight” to EMV certifications, asking pointed questions about the effectiveness of the process and hinting that the payment industry did not allow retailers enough time to comply with last October’s deadline.
In a separate letter to EMVCo, also dated May 11, Sen. Durbin asked Brian Byrne, director of operations, about its “lack of diverse stakeholder representation.” The group is governed by six global-payment networks; each owns one-sixth ownership stake in EMVCo.
In the lawsuits, B&R Supermarket seeks a remedy for the chargebacks, while the Wal-Mart suit asks that the court put a stop to Visa’s practice of allowing signatures (arguably less secure than personal identification numbers, or PINs) to authorize payments. The Wal-Mart lawsuit claims the 2010 Frank-Dodd Act and Durbin Amendment keep credit-card companies from forcing certain debit-card choices upon retailers.
A third lawsuit, this one brought on by dozens of retailers, including Ankeny, Iowa-based Casey’s General Stores; Jacksonville, Fla.-based Gate Petroleum; and Cary, N.C.-based Cary Oil Co., attacks the credit-card companies at their core, saying several of their fundamental practices amount to collusion and, as a result, “inflated” interchange fees.
An industry consultant, who spoke to CSP on condition of anonymity, said some believe the lawsuits are just posturing for future chargeback negotiations.
“Instead of making things, we’re spending money on lawyers,” says the consultant, who is disappointed that EMV is not only a distraction for retailers but also a pull on resources.
Pump By Pump
Though EMVCo has processed many new certifications, hundreds—if not thousands— have yet to materialize, according to Luke Grant, director of payment and marketing applications for Gilbarco Veeder-Root, Greensboro, N.C.
While Gilbarco has completed development of EMV software for its dispensers, “a lot of steps still need to happen,” such as POS makers writing to Gilbarco specs, with certification and field trials after that.
“Every unique solution, every set of boxes and software has to be certified, up to each card brand,” Grant says.
In the meantime, retailers should decide which forecourts need new pumps or just retrofits, which would necessitate breaking the concrete to update wiring and what value-adds to consider, he says.
Grant’s colleague Mark Williams, vice president of North America EMV for Gilbarco, says, “Retailers are already touching every pump, so why not make the most of it?”
Continued: The Dawn of Payment Disruption
The Dawn of Payment Disruption
Driven by high credit-card interchange fees, leading-edge convenience stores have put the channel ahead of the curve regarding mobile payment. For many, that meant an Automated Clearinghouse (ACH).
Through third-party arrangements, many regional chains have bypassed interchange fees first via plastic loyalty cards and now mobile apps. Among those disruptors are Framingham, Mass.-based Cumberland Farms; Waycross, Ga.-based Flash Foods (which San Antonio, Texas-based CST Brands acquired in 2015); North Salt Lake, Utah-based Maverik; Anderson, Ind.-based Ricker Oil Co.; and Greenville, S.C.-based The Spinx Co.
“I’ve talked to [people in] other verticals and they are floored by how much ACH we’re doing,” says Gray Taylor, executive director of the c-store technology standards and NACS advisory group Conexxus, Alexandria, Va. “We’ve got guys who do more on ACH than card brands, which speaks to our ability to capture customers and entice them to alternative payments that are cheaper even under Durbin [requirements].”
The challenge for each chain was to find financial partners to set up the ACH process, communicate the alternative to consumers and offer the right incentives to encourage migration. It meant getting customers’ bank-account numbers and asking they follow prompts and type codes on their phones to unlock dispensers—all potentially difficult steps. In some cases, major oil companies were also involved, requiring extra legwork with each branded network.
Third-party companies are now emerging that tie the ACH transaction—also known as “decoupled debit”—with digital coupons and loyalty offers.
Whether those inroads will hold remains a question as other phone-payment methods gain ground. Take the high-profile mobile wallets, for instance, such as Cupertino, Calif.-based Apple Pay and Seoul, South Korea-based Samsung Pay. At their core is near-field communication (NFC) technology, which uses a transponder in the phone to activate the POS. It’s essentially the same as using a magnetic-stripe card, because they travel the same processing “rails.”
More than a quarter (27%) of U.S. consumers with an equipped smartphone have used Apple Pay, Android Pay or Samsung Pay, according to a study from New York-based Auriemma Consulting Group. With less than half of U.S. smartphones even equipped for NFC, “reaching for the phone instead of the wallet isn’t an automatic reflex, even for mobile-pay enthusiasts,” said Marianne Berry, managing director of Auriemma’s payment insights practice, in a statement. “Mobile payment has yet to reach the tipping point that will take it from novelty to norm.”
Continued: Mobile Pay: How It Works
Mobile Pay: How It Works
Susan Chan of W. Capra in Chicago describes mobile payment as if it were a fast-talking auctioneer, with chatter flying between a half-dozen people in the blink of an eye. As mobile payment becomes more intertwined with rewards, that conversation expands: You have 50 reward points ready to claim. Do you want to use them? Yes. OK, you get a discount. Turn on the pump.
The “ask” that releases the pump will more than likely occur in an “above-site” scenario, in which the smartphone talks to a host somewhere in the cloud, which initiates a series of communications that results in a request to turn on the pump.
Continued: Loyalty and Digital Coupons
Loyalty and Digital Coupons: Tomorrow's Currency Toolkit
Arguably one of the most transformative forms of currency for the convenience-store space coming online will be digital coupons.
Gray Taylor of Conexxus says consumers redeem $4 billion in coupons each year (out of an ocean of $400 billion in coupon dollars offered annually).
“We’re not getting any of those dollars today,” he says of c-stores. “We’re the No. 1 vertical for CPG companies, so there’s a huge appetite and a lot of passion out there to figure out how we can … secure single-use digital coupons.”
With tobacco as a lead category for such digital promotion, “that could mean tens of billions just by bringing on that tender type.”
The move may come at a price, however. Where retailer-specific offers pull customers into those stores, a consumer packaged goods (CPG) coupon may not, instead letting customers redeem it anywhere they want.
But retailer-specific CPG coupons are “closed-loop” coupons, Taylor says, which can be off-putting for customers. “Retailers shouldn’t care [if a coupon isn’t retailer-specific],” Taylor says. “They should be thankful that they’re getting paid a handling fee.”
Such CPG offers also create what Taylor says is a “level playing field” for smaller retailers without the resources to develop a sophisticated loyalty program.
Inroads Or Roadblocks?
As Taylor describes the evolving nature of digital coupons, recent moves in loyalty—including digital coupons—may either help or hinder the channel. Here are a few of those potentially game-changing actions:
Digital coupons’ painful adolescence. Distribution, redemption and reimbursement processes for paper coupons today is clunky and inefficient. A source in the c-store loyalty space says the players did not leverage technology to reinvent the process for fear some of them would get cast aside. Rather, according to the source who spoke to CSP on condition of anonymity, they just automated what they did with paper coupons. So the system still needs an overhaul, he says.
The settling of price-rollback lawsuits. The battle over the patent rights for fuel-price rollbacks—whereby a customer swipes a loyalty card at an in-pump POS and sees the price “roll” back—had been going on for some time. But recently, a litigant in a lawsuit against Dallas-based Excentus recently settled without trial, emerging with the ability to offer retailers his fuel-price rollback solution. Also speaking to CSP on condition of anonymity, he says he was the last of several providers and retailers to settle, leaving debate over patent rights to the rollback process without a definitive court decision. That positions Excentus as the sole gatekeeper of the popular reward method, according to the source.
Major-oil loyalty. Houston-based Shell and ExxonMobil, Irving, Texas, have initiated networkwide loyalty programs, with Shell doing a fuel-rewards offer and ExxonMobil going with a coalition-based solution in American Express’ Plenti program. Cross-channel retailers such as Rite Aid and Macy’s are part of the Plenti network, as are a variety of other companies such as Enterprise Rent-A-Car, AT&T and content provider Hulu.
As more loyalty-related events play out, retailers with ACH-based programs will have to evolve beyond one-dimensional discounts such as fuel rollbacks at the pump, says Anton Bakker, president of Outsite Networks, Norfolk, Va. Data-rich analysis will eventually support more sophisticated programs based on “brand transactional engagement,” wherein product movement leads to purchasing insights. “For both retail and brands, it’s about more than just discount,” Bakker says. “It’s about having a conversation, an authentic, relevant dialogue by segment, and understanding behavior from a transactional point of view.”
Continued: The Fuzzy, Not-So-Far-Off Future of Currency
The Fuzzy, Not-So-Far-Off Future of Currency
Once Americans start to think of money as a series of zeroes and ones in a virtual ecosystem, the concepts of value and bartering will expand exponentially. The idea of money having a time value, setting a price on a person’s presence in a store, or brand affinity cultivated via algorithm or facial-expression analysis are all aspects of the new currency.
It’s a mindset that builds as more and more people go from cash and checks to electronic currency, and something that Bill Deichler, payroll solutions program director for NACS, is hoping will happen quickly among the country’s unbanked and underbanked.
In charge of a NACS program that transitions companies from paper payroll checks to electronic deposits, Deichler says the industry can reap millions in savings.
As many as 30% of store-level employees don’t have a bank account or are underbanked, Deichler says. “Going back to my [days] working at a [1,000-store chain], we’d FedEx checks twice a month at $370,000 a year.”
The NACS initiative uses a reloadable MasterCard debit card, with payroll put into an account associated with the card. Employees use it like traditional debit cards at merchant or online locations, take cash out at ATMs or use a small number of blank paper checks for things such as rent.
Payment instruments definitely will evolve, using mobile to include personal identification and age verification, he says.
“These devices can hold [multiple] accounts, debit, credit, medical information, insurance, high-resolution IDs and driver’s licenses,” he says. “Identity will be a big part of it.”
The Meaning of Money
Deichler points to identification as a big element, but even anonymity is part of tomorrow’s evolving currency. Take bitcoin as an example. The digital currency means different things to different people, says Jessica Dunham, public relations coordinator for National Bitcoin ATM, Irvine, Calif. For some banks, it’s a way of avoiding expensive upgrades to new technologies. But a decentralized currency means people can buy things or save money anonymously.
As the notion of currency changes, so does brand affinity. It’s a fight for app positioning on mobile screens that may be the next critical brand battle for retailers and anyone else along the payment pathway.
Essentially, all transactions lead to a final source of actual money. In an article for Crunch Network, contributor Alex Rampell said MasterCard and Visa aren’t the only credit options. Financial firms such as San Francisco-based Lending Club routinely renegotiate people’s loans and credit-card debt for a lower rate. “Why wouldn’t they just skip [the credit cards] and go right to the … best ‘marketplace lending’ rate?” Rampell said.
When a phone manufacturer such as Apple controls the device and the payment platform, multiple new scenarios could cut out big players, including credit cards, CPGs and, yes, retailers. So it comes as no surprise that Wal-Mart is working toward a rollout of Wal-Mart Pay this summer, as is JPMorgan Chase, which is set to pilot and then roll out Chase Pay in the summer.
Both are “game changing” in different respects, says Jacqueline Snell, vice president of strategic initiatives for MShift, Newark, Calif. “Wal-Mart’s strategy is to take mobile technology, avoid giving up control to Apple Pay, Android Pay and Samsung Pay, and drive down interchange costs,” she says. “Chase Pay will put pressure on other banks and credit unions to have their own form of mobile payment, or their customers will start using any of the other mobile solutions, resulting in a disintermediation effect.”
However it shakes out, Scott Hartman of Rutter’s Farm Stores believes the complexities will remain. “Mobile payment is an extension of our customers’ existing wallet, so the same things that people carry today will reside in that mobile wallet of tomorrow: currency, loyalty cards, coupons, gift cards and personal identification,” he says. “We’ll not only need to accept the multiple ways our customers want to pay … but we’ll also need to prepare for the instant and spontaneous interaction that digital can provide us with our customers.”
Editor’s Note: At press time, Visa addressed certification times and chargebacks, but the effect of those moves remains a question.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.