Recently, I wrote that it might be over for the banks in the US payment systems in the next three years. I based my view on two facts. The first one was their model where basically issuers and acquirers were very far way from one another. And the second was US banks’ very late adventure with migrating to chip (read smart cards) technology.
We are still in 2012, and there are still 3 years to meet the EMV migration liability shifts. And yes there is still a good chance that the big retail banks can come up with a resurrection. Resurrection from google wallet, square, and from any other start ups who deal with the merchants creatively. If they only embrace PIN rather than signature at the point of sale and if they invest heavily on contactlessterminals.
Say good-by to signature: Signature, although most merchants make it look as if it is digitally captured and stored and transacted on, is in fact analog and not made for the digital world. Nobody is checking the validity of a signature and with its variations, it would be a daunting task anyhow.
There is a better way to “sign “the transaction digitally: PIN. Cardholder’s personal identification number. French banks adopted it in early 90s, much before EMV to fight fraud, UK banks loved the idea and launched “I love PIN” on Valentine’s day and Turkish Banks surprised cardholders by starting to ask for PINs on April’s fool day. Many other countries which migrated to chip technology leave the choice to the cardholder.
My view is that should the US banks be serious about smart cards and enhancing the cardholder experience at the point of sale, they should embrace PIN. A PIN entered through the EMV system is verified off line in nano second and makes the transaction for both cardholder and the merchant safe. There are much less charge backs with PIN transactions lowering costs for both the banks and the retailers and giving much less headaches to the cardholders. It helps to move the society away from cash as a transaction verified with PIN with a smart card is safer then cash.
In short; fast, secure, digital. And as it changes the cardholder experience at the point of sale, it increases the awareness for smart cards, (EMV migration). It will show to the public that the US banks are finally doing something for them!!!
Contactless is another opportunity for the US banks to keep non banks at bay. They will need to upgrade millions of terminals when they move to EMV anyhow. And frankly it is about time. Most US terminals are out of date, slow, and lack processing power.
While upgrading them, why not upgrade them with contactless technology of Visa and MasterCard? Tap and go technology is available for many years yet it is the coverage at the merchants which didn’t pick up. Both PayPass and Pay-wave are interoperable just like EMV so both systems are truly international.
The US can achieve three things with this upgrade:
1) It will pave the wave for NFC (paying with smart phones)
2) It will kill square type companies as they are old school technology actually,
3) and it will enhance and quicken the cardholder experience at the point of sale for the cardholders (shorter lines for the merchants too)
So in short, it will be good for retailers, cardholders and the banks. Not win-win, it is actually win win win!
Now, if it is combined with PIN migration as I advocated above, it will be a big win for all as any transaction above the contactless threshold will be verified with PIN without inserting the card into the terminal, or better; if NFC is involved, without taking the card out of wallet. And it will keep the payment systems within banking as the acquiring systems will be controlled by the banks.
So don’t you think that MasterCard and Visa will help US banks with these ideas? They have all the expertise and vision to work with US banks due to their international experiences around the world.
I guess the right question is do they have the leverage on the bankers? This answer is no with a possible yes if they play their cards right; The need for US banks to score in PR with the press and the public, timing can not be better, in fact it is now or never (dues to EMV migration and the developments on NFC) and…if the banks pass this on, they will lose merchant business so fast before their very eyes.
The US Banks are standing on a turning point in the history. They can act together, open a nation wide project, educate public and the retailers and push US to the front of payment technology once more so American consumers may be proud of their banks again, or lose the point of sale with no possible return.
MasterCard and Visa, please act now….
