The End of Cards as We Knew Them?
Note: this commentary could be subtitled: “How my trip to the U.K. left me with a chip on my shoulder!”
When I was a child, I remember preparing for international travel by accompanying my parents to our local bank branch to purchase traveler’s checks. It wasn’t exactly convenient – but they felt safer traveling with them in lieu of a lot of cash. Fortunately, over the last twenty years, technological progress in the banking industry made travelers checks obsolete. My credit card was “all I need”. I could think of it as money!
So when packing for a recent trip to the United Kingdom (to visit my family in Wales), I simply kept a few credit cards and my debit card in my wallet. It’s been my normal practice to charge everything I can to my credit card when traveling, meeting my cash requirements by withdrawing a nominal amount of cash from a local ATM upon arrival. And this isn’t just my behavior – everyone I know follows the same practice.
Think again. Banks in the U.K. have followed the advice that some payments professionals were urging for years – to implement Chip and PIN program for all U.K. issued cards to reduce fraud. Ironically, I found out on my vacation that the rollout of Chip and PIN made my US-issued mag stripe credit cards virtually useless.
I was struck on this trip by the number of locations in the U.K. that either had no ability or were unwilling to accept a chip-less US credit card. Grocery store after drug store after gas station refused the card because it lacked the chip. I was also amazed that even the cashiers I encountered in rural Wales were conversant in this problem. They explained they could only take a “chip card” — not a “swipe card” – for payment.
It wasn’t just Wales where this was a problem. Trying to park on the street in Mayfair in London, we were initially happy to find a parking meter that proudly displayed Visa, MasterCard and other mobile payments options – including pay-by-text. Cash and coins were not accepted. But not only was I unable to pay for parking with my U.S. card – or my U.S. mobile phone – but to add insult to injury, I was slapped with a £40 parking ticket by the City of Westminster as I had a “can’t miss” appointment.
I wasn’t alone in being unprepared for chip. My father joined us for a few days on the trip, and, being accustomed to using his Canadian credit card everywhere, he left his debit card at home. By not having a chip, he was unable to use his card for a cash advance – a service he was counting on, since he had paid a positive cash balance into his card account. As an immigrant from England many decades ago, he still had a U.K. bank account and literally had to go to a branch with personal identification to withdraw money (how passé!). He was really lucky – needless to say, most foreign tourists don’t have bank accounts in the country they are visiting!
Having worked in the past on the fraud-based business case for chip from both an issuer and an association perspective, my advice has always been that the cost of implementation cannot be offset simply by reducing issuer fraud benefits alone. But I have to say that those business cases did not include the costs of lost purchase volume or fees. In my experience, card issuers have not estimated the cost of lost purchasing volume due to “non-transactions”. And it’s not just the actual lost purchase volume itself. Those issuers also lose valuable cross-border transaction and currency conversion fees – a current battleground for revenues between the merchant, acquirer and issuer bank.
Perhaps a bigger problem for the global card networks, however, is the potential impact on their brand promise. “Go anywhere in the world with your card” … unless you need to visit the U.K., France, and a growing number of other countries – soon to include Canada and China!
Clearly, the chip is not simply about the fraud business case for issuers anymore. What has happened to global card acceptance? Ubiquity? To one card everywhere? To “All I Need”? The global card networks need to be concerned. They exist to support the global brand. If the brand promise is broken, why would consumers carry a card they can’t depend on?
The future is clear – US issuers and global associations are going to have to view chip beyond the narrow implications of fraud reduction. Most importantly, in my opinion, the promise of the universal utility of the consumer’s credit card must be kept. Otherwise, we may need to dust off those old traveler’s check business plans!