Call it the battle of Goliath vs. Goliath. Walmart, the nation’s largest retailer is taking on financial behemoth Visa in New York Supreme Court.
What’s the beef? Those wonderful chip cards that as of late last year became the lay of the land in the U.S. Ben Woolsey, president and general manager of CreditCardForum.com explains, “Walmart contends that they should have the right to force their customers to enter a PIN when paying with a chip-enabled Visa debit card, but that Visa is allowing them the choice to perform a signature transaction (which Walmart contends is “fraud-prone”) at the point of sale. Allowing customers choice is a requirement under Visa’s merchant agreement and bylaws. So in a nutshell, the case is about merchant rights vs. card processor rights.”
Ellen Cunningham, marketing manager for CardFellow, an online marketplace where credit card processors compete for businesses, believes the real issue is money. “Walmart claims that a customer authorizing a chip debit transaction with a signature is less secure than authorizing with a PIN. That may be true in the small set of circumstances where an authorized user is attempting to use a stolen debit card, but it’s more likely that Walmart’s problem lies with the cost of accepting the cards.”
When a customer uses a PIN with their debit card, Walmart pays fees to the debit card network. (It does not pay money to Visa in that situation), says Cunningham. “When a customer uses their debit card and signs for the transaction, Walmart pays fees to Visa. The costs paid to Visa are a little more per transaction than the costs paid to the debit networks. Thus, Walmart wants to restrict payment methods to the lowest cost – for them, that’s PIN debit,” says Cunningham.
Steven Weisman, an attorney and author of Theft Alert, “Requiring Walmart to route payments through Visa’s network for the signature verified transaction, rather than through a competitor’s network when using a PIN increases the fees paid by Walmart for card processing by about five cents more per transaction, which adds up for a large scale company like Walmart.”
Christopher Rumpf, owner of Rumpf Computer Solutions, a restaurant and technology company focused on point of sale and payments, estimates that Walmart processes about 15 million transactions a day. “Assuming half of those debit transactions are Visa transactions, Walmart stands to lose upwards of $42 million per year in additional fees associated with signature debit vs. PIN debit.”
What does all this mean?
So Walmart stands to lose big time financially, if they don’t win the case. What are other implications of the lawsuit?
“If consumers are used to, and enjoy using signature debit transactions with their Visa debit card, a ruling in favor of Walmart in this litigation may limit the amount of retailers that allow signature debit. As a payment expert, I would never advise a consumer to use signature debit in any case where PIN debit was offered,” says Rumpf.
In the U.S., chip and signature is the standard versus most other countries where PIN is the standard. “Understanding the greater risk involved with signature transactions versus PIN transactions, a win for Walmart in this case could open the door to further movement to chip and PIN in the U.S. as well, which would be a win for consumers in terms of privacy and security, but a blow to the bottom line of small retailers and restaurants who would again be tasked with a heavy cash outlay to upgrade systems in order to accept chip and PIN ($2,500-$10,000 per store, plus in some cases additional staff members to handle the transactions).
Another unintended consequence of a Walmart victory could be a further increase in banking fees, if Visa debit card-issuing banks lose more revenue as a result of this case, which did happen when debit swipe fees were first capped a few years ago, points out Woolsey. Then too, “It would probably take many years to come to fruition, the subject of both swipe fees and PIN vs. signature requirements could eventually spill over into the credit card arena as well, which has thus far avoided legal or regulatory challenges since member banks completed reissuing chip-enabled credit cards last fall,” says Woolsey.
He adds a final thought, “Both claim to have the consumer’s best interest at heart, but in reality, they are primarily focused on their own rights and maximizing profits at the expense of the other. However, it’s a zero sum game between these corporate titans and the consumer is on the sidelines. Should Walmart win, any savings in their cost structure wouldn’t likely find its way to consumers in the form of lower prices – only shareholders and senior corporate executives would inevitably enjoy the spoils. If Visa wins, then it should be business as usual, or at least until the next lawsuit.”