Corporate treasurers voiced their concerns about credit and debit cards on Monday at the Money 20/20 Europe conference, as part of the panel discussion ‘Merchant voices – friction points for global retailers’.
Primarily, the treasurers – mostly US-based – were concerned there is no viable alternative in the cards space, with the global market dominated by Visa and Mastercard.
They said they were left with no option than to accept the fees these companies impose, and that they do not have an organization they can put their grievances to.
Troy Carrothers, senior vice-president at Kohl’s Department Stores, says: “Who is going to stop accepting Visa and Mastercard? Antitrust authorities need to look at the costs they are imposing on merchants.”
Having the market dominated by a small number of providers, regardless of their expertise and global scale, also has an effect when things go wrong.
Reed Luhtanen, senior director of global treasury at Walmart, says: “It is important for there to be multiple options during each leg of the chain for both e-commerce and in-store. When we see incidents like Visa’s network going down last week, there is no alternative to revert to.”
The lack of input from treasurers into the decisions being made around fees and regulations was cited as a cause of dissatisfaction. Treasurers feel they are being left out of the process, despite them being the ones who need to use the cards in their businesses.
Kohl’s Carrothers says: “Which merchants get a voice in the decisions on payments? How much involvement do we get into how standards are set? Treasurers should be involved in this process.
“There is a lot of concern around the rising cost of payments. How do treasurers reconcile the cost of the same transaction being more expensive?”
The merchants are unable to work directly with their banking partners around card payments.
Carrothers says: “There is no scope for the companies to negotiate with the banks on getting better deals under the current set-up. The card providers can add charges arbitrarily and there is no mechanism to stop this.”
The security of these payments comes from the card vendors, which in turn incurs additional costs.
Carrothers adds: “Not only are merchants paying more for using digital network, the majority of tools they use to protect themselves have a fee and are owned by the card providers.
“They are being charged for the transaction and then charged again if they want to reduce the risk of fraud on the same transaction.”
Further, the treasurers were concerned about the protections that were brought in to combat fraud and the level of success these initiatives have had.
EMV (Europay, Mastercard and Visa) chip cards were only introduced in the US in October 2015, while they have been in use across Europe since 2005. Bringing in these cards meant merchants had to update their terminals to accept the payments, but say there has been no return on the investment through increased sales.
Elizabeth Amend, senior treasury manager at Louis Vuitton, says: “The EMV modules were introduced to protect against fraud, but fraudsters knew the weak points. They knew which stores were compliant so attacked the weak ones instead, or went to the online stores.”
For the companies that see a large number of their sales coming from international shoppers visiting the country, such as the luxury goods sector, the rising cost of international cards payments has added an extra level of stress.
Amend says Louis Vuitton is having to factor in this expense, as well as the FX rates fixed by the card providers.
“We have seen the costs increase on foreign cards being used in the US,” she says. “The option for customers to pay in dollars or their local currency is also having an impact as it locks in the exchange rate of the day of the transaction, and has been set by the card provider.”
The issues around card payments extends beyond the use of cards instore. As retailers are seeing more sales online, they are also having to pay more for every digital transaction, and with the same risk of fraud.
Robert Herzig, director of customer payments and finance at German retailer Metro AG, says: “The cost of a transaction is 220 basis points in the US. There can be another 30bp to 40bp added to process a digital sale.
“The digital market is still at risk of fraud as the protection of the EMV chip is useless in these transactions.”
Although there has been much debate about the emergence of new forms of payments, including mobile wallets, the panel thought it was unlikely there would be a move away from EMV cards any time soon, especially as there are still legacy payment options being widely used in the US.
Carrothers says: “Mobile wallets were forecast to be on the increase, but they still represent only 1% of transactions.”
Walmart’s Luhtanen adds: “Terminals will still be in store in five years. During 2017, Walmart processed 100 million cheques. A full move to terminals simply won’t happen without risking losing customers to the competitors.”
There is also a wide proliferation of the types of wallets treasures are willing to accept. As well as the likes of Apple Pay and Samsung Pay, the rising use of Alipay and WeChat Pay in China is encouraging merchants overseas to start accepting these payment methods, or risk losing out on sales.
However, there are others that merchants are approaching with caution, as they are concerned about the level of information accessible around transactions.
Carrothers says: “There are limitations on which ones merchants will allow. Amazon Pay is available, but would you allow it to be used in your store and let Amazon see all the products that the customers are purchasing?”