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Evolution in Payments & Commerce: The Rush to Implementation - Who Benefits? (MAG Quarterly- Volume Six, Issue Four)

By Laura Townsend, SVP, Operations, Merchant Advisory Group

December 6, 2018

We have seen a number of new payment products, solutions, and initiatives either announced or commercialized in 2018, including Visa Claims Resolution, MasterCom Claims Manager, Secure Remote Commerce, EMV 3DS (ie. 2.0), and 3DS related compliance programs to name just a few. What is the merchant sentiment when it comes to these new offerings?

In the world of for-profit business, initiatives are usually prioritized based on a return on investment. In the world of payments, retail business priorities are often influenced by third parties that pronounce requirements and rules that may or may not result in a return on investment for retail business. The reference to third parties could certainly include government regulation or legal action. The vast majority of influence regarding retail payments technology investments comes from the global payment networks, however. 

Traditionally, twice a year the payment networks announce changes to their rules, programs, and requirements for payments processing of their card products. These announcements historically require these changes be implemented by stakeholders, including retailers and their service providers, within six to 12 months. This time-frame can significantly impact resources supporting priorities already established for the calendar year. Although many retailers may reserve budget for investments to maintain systems or unexpected developments, most investments are still expected to improve operations, reduce costs, or increase sales. So, what is the sentiment with regards to the new changes that have come forward and are they meeting expectations?

One example is Visa Claims Resolution (VCR), which was introduced effective April 2018. The promise of this new program was to streamline and simplify the chargeback process, lower instances of chargeback fraud, and standardize the dispute system.  Post-implementation a published study among merchants shows that 33% did not know about VCR despite its implementation, and, of those aware of the program, only 33% saw a reduction in Visa chargebacks with the majority of those realizing a reduction less than 5%. Notably, 15% of merchants say they experienced a higher number of chargebacks post VCR and 25% saw an increase in a chargeback category. Sadly, it is extremely disturbing to learn through the study that Visa implemented fees for non-response to disputes, and 40% of merchants remain unaware of these non-response fees.  

MAG did its own brief member survey and found similar results suggesting 69% of respondents did not see a reduction in chargebacks post VCR. In addition, the survey results indicated another promise of streamlined back office processes has not yet been achieved. Eight percent of respondents saw an increase in operational overhead required to manage disputes while 77% of member respondents indicated overhead remains the same as pre-VCR. These results come after an implementation timeline that experienced a significant lack of stakeholder readiness. These implementation challenges caused MAG to send a request to Visa to delay its implementation. Unfortunately, the implementation went forward in April as planned. Although this early read is interesting and relevant suggesting the results expected have not been achieved, the jury is still out. MAG remains hopeful merchants realize some benefit over time from the investments they were required to make. 

Another example is the EMV implementation which, despite its current state of industry support, was and still remains significantly delayed beyond the original deadline for shift in liability. The delay for petroleum unattended pumps to 2020 is still too aggressive for several petroleum merchants to achieve given the significant investment in dollars and other resources required for migration. Those merchants that have implemented EMV seem to have realized a reduction in counterfeit losses at the point of sale in-store; however, the increase in remote counterfeit fraud has offset the promise of overall gross fraud reduction the industry is still waiting to see.   

A pending implementation that intends to address security and fraud in the remote payment space which has the attention of many in the industry is Secure Remote Commerce (SRC). The promise global networks have suggested include increased security, enhanced customer experience, ease of merchant integration, and decreased fraud.  These all seem ideal from any stakeholder’s point of view.  According to the networks, the foundation required to deliver this promise is the EMVCo specification and framework, which is still under development. Many comments from many stakeholders on this draft specification remain outstanding. There were a number of comments provided by EMVCo Associates and Subscribers that remain outstanding in the current draft version of the specification now made available to the public for comment. Obviously, new comments will surface as a result of additional comments submitted by the public through the deadline of December 3, 2019. Despite this, some global networks are developing proprietary specification and products as part of their individual implementation plans to bring SRC to market sometime in 2019. Unfortunately, there is no data to support the promises of SRC will be realized, yet implementations will begin next year including the transition of Visa Checkout and Masterpass to SRC. This timeline for implementations seems premature and aggressive without validation of results.

The trends of the past suggest that payment products, programs, and policies are implemented aggressively with plans that don’t always achieve the return on investment for the merchant – something that should be expected by traditional standards of for-profit business. In an effort to change this trend, MAG is working with industry stakeholders to bring merchants to the table prior to implementation and, in fact, as standards are developed to ensure the retailer point of view is considered. Our efforts primarily have been through our recent step to join EMVCo as a Business Associate as well as our membership in the World Wide Web Consortium (W3C).  

In the world of payments, merchants expect engagement in future payment product design, development, and implementation plans to ensure they can build into their planning, development, and budget cycle those initiatives that will drive operational improvements, reduced costs, or increased sales. Absent this, it is difficult to surmise who is benefiting from these implementations that are ineffective and inefficient for the merchant community.