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The Innovate Now: Value of Competition in E-Commerce (MAG Quarterly- Volume Four, Issue Four)


By Terry Dooley, Executive Vice President and Chief Information Officer (CIO), Shazam

December 1, 2016

The value of choice, flexibility, and competition has never been more important in payments as it is right now.

The payments industry is going through a significant transformation, and those in it will acknowledge the pace of that change is unprecedented. In a time of such fast-paced change, it’s easy to miss both opportunity and unintended consequence.

The introduction of EMV’s proprietary technology into the market place, under the guise of a security upgrade, will reduce much of the counterfeit fraud at the point of sale.  But, we now know it also immediately eroded the choices merchants, issuers and consumers have when paying for their goods and services. 

Thousands of merchants, eager to prepare for the liability shift, rushed payments solutions to their brick and mortar stores without fully understanding the costs and benefits of those machines.  Some issuers did the same, rushing to reissue EMV cards to beat an artificial deadline.

Because EMV technology is based on proprietary standards, the result was a solution that limited a merchant’s choice and may have even driven up costs. 

Most merchants didn’t realize, and are only starting to now understand, they could modify out-of-the-box solutions or demand routing choice the law requires from their acquirer.

Today, merchants are faced with a new opportunity that could be blunted by the old problem we just laid out. The traditional PIN debit networks have introduced new transaction support over the last few years for PIN-less and signature transactions.  The debit networks have always supported dual-message processing.

This is important because, to this point, signature and PIN-less transactions did not have robust routing competition. In many cases, transactions could only be routed to the global brands. As this competitive environment continues to evolve, more networks are introducing support for signature and PIN-less transactions.  

Merchants who use card-on-file, support in-application purchases or brick and mortar merchants like restaurants are all seeing the value in the two-unaffiliated network requirement granted to them by Regulation II.

The changes foster innovation, choice, flexibility and efficiencies for merchants, networks, issuers and consumers. They allow competition across all the various channels and transaction types.

But, that kind of competition is once again put in jeopardy.

The introduction and support of EMV and tokenization is driving the U.S. payment system to use proprietary standards and intellectual property owned by the global brands, instead of open standards that foster innovation and competition.  What’s worse, rules and mandates by the owners of that technology may restrict routing and further stifle competition.

Thankfully, merchants and issuers can drive this conversation and make choices to encourage the kind of competitive environment inherent in a healthy marketplace.  As new technology and transaction sets become available, look to enable PIN-less or signature transactions for the other brands. 

It is important to make sure you enable technologies in the stores that allow you routing choice. You shouldn’t have to give up choice and flexibility to harness any payment access device that connects you to a consumer’s debit account.

Technologies used in the payments industry are changing fast.  There is no doubt some of the latest technology benefits the consumer, merchant and the issuer. 

But, if we ignore the fact these technologies also fly in the face of the open standards that have created innovation in electronic payments for more than two generations, merchants and issuers may quickly find themselves paying more for less. This ultimately means having fewer options and being forced to support solutions they don’t want or need.