Moving Payments to Mobile: Customers Win with Competition
Background:
A customer’s retail shopping experience can sometimes be defined by their time at the
checkout. A seamless and frictionless checkout experience is a critical component of good customer
service both in-store and online. In today’s plastic card environment, a large component of that
customer service includes being able to accept several different types of customer payments. These
payment types may include everything from Visa and MasterCard branded credit and debit cards, to a
retailer’s private label credit card to checks, cash, gift cards, and other products.
While there are tremendous customer benefits in retailers being able to accept a similar slate
of financial products on mobile phones, the mobile commerce landscape is a very different
environment for payments than plastic cards, especially with the market entry of new stakeholders –
wallet or technology providers such as Apple Pay, Android Pay, Samsung Pay, PayPal, and CurrentC into the payments chain.
There are many uncertainties about the security features, data management, and overall
business terms of these various mobile wallets. Key policy concerns include 1) how securely an
account is loaded or provisioned to the wallet; 2) the overall transaction security when goods are
purchased using the wallet either in-store or over the Internet via an “InApp” payment; 3) the overall
acceptance, technology, and transaction costs; 4) the collection, use, and management of customer
data; and 5) the overall customer experience.
The Issue:
Honor All Card Rule
Honor All Cards is a network brand (i.e. Visa, MasterCard) acceptance rule, which states that if a
merchant accepts one type of a brands’ credit card, they have to accept them all. Network card
acceptance rules are part of a non-negotiable contract merchants sign when electing to accept a
network card brand. These rules are enforced through network fines and penalties, which can start at
up to $5,000 a day.
Global card brands have indicated that their Honor All Cards rules apply to any digital or
contactless environments thereby effectively creating an Honor all Wallets/Honor All Devices policy.
Under Honor All Wallets/Devices, if a retailer accepts a card brands’ plastic credit card, they in turn,
have to accept the digital version of that credit card presented through a mobile wallet if they’ve
turned on the acceptance technology associated with that digital wallet.
Merchants have long opposed the global card brand Honor All Cards rule. The Honor All Cards
rule effectively pigeonholes merchants into accepting any different variation of a network-branded
card that comes to market regardless of pricing, security features or other characteristics critical to the
merchant and consumer value proposition of those products. International authorities in Australia,
Europe, and other countries have found the Honor All Cards rule to be anticompetitive, and have
prohibited or altered it.
Technology
To date, card brands have tried to deploy this Honor All Wallets/Honor All Devices strategy
primarily in NFC environments. NFC is near-field communication or tap-and-go payments technology. It
is the technology used for in-store Apple Pay payments today. NFC is an older technology with several
proprietary features favoring global credit card brands. Looking ahead, US domestic payment card
networks may be disadvantaged in the manner in which they can compete in NFC payments
environments.
A trend is emerging both nationally and internationally wherein global card networks are trying
to tie together plastic card contact (swipe or dip) acceptance with contactless acceptance [See US. Visa
Business Rule Update from October 2014]. Furthermore, the application of Honor All Cards to
contactless mobile payments means that if a merchant turns on a particular card acceptance
technology (e.g. NFC or otherwise) at the checkout, Visa and MasterCard card acceptance rules require
they accept any and all of their network-branded credit and debit cards on that mobile device no
matter what digital wallet the card is stored in as long as that wallet is accessible through the point-ofsale technology that has been activated by the retailer.
Problem
Forced wallet acceptance is extremely problematic in that it dis-intermediates the retailer from
having a direct business relationship with the mobile wallet or technology provider. Without expressly
signing a contract to accept a particular digital wallet or product, the merchant has no control over the
cost and liability associated with card acceptance, the security of the product that is loaded onto the
phone or into the wallet, the security features utilized by the wallet provider or card account issuer to
ensure transaction security, the collection, flow, and management of the customer’s shopping data,
and the overall customer checkout experience.
Forced wallet acceptance through the enablement of a particular acceptance technology also
severely impedes the ability of merchants and wallet providers to strike a balanced set of business
terms at a later date. This is particularly true for wallets that may not support payment alternatives,
such as private label cards, closed loop retail-specific gift cards, or ACH. Even when those wallets do
support inclusion of such products, they may take a back seat to traditional credit and debit products
even if they are the preferred payment mechanism of the consumer or merchant. Most merchants are
well-informed about their own customer’s checkout wants and needs, and yet without a direct
business relationship between the merchant and wallet provider, it will be challenging to offer the
customer the best experience possible at the checkout, which could negatively impact customer
response management and time in lane.
Lastly, application of Honor All Cards to mobile commerce will have a tremendous negative
impact on innovation and the uptake of any mobile wallets or technology solutions that are tied to
whatever card acceptance technology forces merchants into non-negotiated, multi-wallet acceptance.
For example, a merchant may want to accept Apple Pay, but not Android Pay, but if both wallets are
accessed through the same technology (e.g. NFC, Bluetooth, etc.) and the merchant decides to turn on
that acceptance technology, under Honor All Cards the merchant would be forced to accept any Visa or
MasterCard product from any wallet if presented by the customer for payment. There currently is no
wallet indicator being provided to merchants in the payment transaction data that would allow the
merchant to distinguish between wallets. At the end of the day, that leaves merchants with the
conundrum of turning on neither or both wallets instead of perhaps choosing just one that works well
for their business and their customer.
Position:
Card network rules and policies that govern plastic card transactions should not be inherently
applied to the digital environment. There are several differences in how plastic cards and mobile wallet
transactions take place, including security features, data flow, and customer engagement. To force
plastic card acceptance policies into a digital environment does not make sense from a policy
perspective, and will have major implications on competition, as well as potentially harmful impacts on
card accepting businesses and consumers.
Any attempted application of the Visa and MasterCard Honor All Cards network acceptance
rules to the mobile commerce environment should be heavily scrutinized by wallet providers,
technology partners, competition authorities, regulators, and policymakers. The tying of physical
plastic card products and digital card products from the same brand will stifle innovation in the mobile
commerce space, and foster very real policy and legal concerns regarding competition, data
management, and customer security.
Additionally, it is critical that merchants are provided with electronic indicators to help identify
at the point-of-sale from which digital wallet a card or account is being presented. This information is
also important for managing customer returns and transaction fraud monitoring from different wallet
configurations. Transparency into the products stored inside a mobile wallet is critical, too, in order for
merchants to be able to provide customers with rewards or discounts linked to a particular payment
product, such as a co-branded fuel card. Demonstrating network preference and providing product
discounts is a merchant acceptance strategy protected by legal settlements between the Department
of Justice and both the Visa and MasterCard brands.
With the speed at which mobile commerce is coming to market, forced wallet acceptance could
have a detrimental impact on innovation and growth in the free market economy. Meanwhile, any
artificial competitive advantage gained by a particular brand, wallet, or product through the
application of unfair network operating rules to mobile could create severe market imbalances for
many years. Such a scenario could have long-lasting negative impacts on the digital economy in the
United States marketplace.