In what seems to be a largely symbolic action that will have little impact on store sales, electronics retail chain Best Buy Inc. staged a boycott of Visa Inc.'s card acceptance fee structure by discontinuing its acceptance of Visa contactless payment cards. Analysts say Best Buy's decision is evidence of growing merchant discontentment over card acceptance rules.
Best Buy began accepting Visa contactless cards in August 2007 and reportedly began phasing them out in October 2009. The retail giant continues to accept mag stripe Visa cards, as well as contactless cards from other brands.
Sources said contactless payments probably accounted for less than 1 percent of Best Buy's total transactions and that most customers denied the use of contactless cards would likely pay with different instruments rather than forgo purchases.
"It's totally risk free where Best Buy is concerned," said Nick Holland, Senior Analyst for Aite Group, a payments industry consulting firm. "The volume of contactless transactions they're actually going to cut out is probably negligible. It's always seemed a really weird fit to me anyway that Best Buy would go with contactless. If you're buying a 52-inch TV, the value proposition of speed and convenience isn't really relevant."
However, the boycott is thought to be symbolically significant as evidence of retailer dissatisfaction over payments industry interchange practices.
"It definitely ties into the legislation and things that are happening on Capitol Hill," said payments industry attorney Paul Rianda, referring to the ongoing push by merchant advocacy groups for federal legislation reforming interchange laws. "A lot of groups are unsatisfied with the whole concept of how they're accepting credit cards. This is another way they're showing their displeasure about having to accept a more costly form of payment."
In a statement responding to the matter, Visa said: "While we're disappointed Best Buy will no longer offer its customers the convenience and speed of Visa payWave [contactless technology], it's important for cardholders to know they can continue to use their payWave card with a traditional swipe when shopping at Best Buy and millions of other merchant locations worldwide.
"Visa values its long-standing relationship with Best Buy, and we look forward to working with the retailer to grow our mutual businesses."
Visa has generated controversy for allegedly pushing the use of signature-based transactions over PIN-based ones at merchant locations to generate the higher interchange fees that signature transactions carry. Best Buy's gripe with Visa's contactless acceptance program was that it lacked the option of PIN acceptance and thus invariably carried a higher interchange fee per transaction.
Many have complained that policies that seem to favor signature transactions are counterproductive in an industry beset by data theft and fraud, given the superior track record of PIN transactions in protecting consumer data. The higher interchange fees attached to signature-based card purchases are meant to offset the relatively high fraud rates associated with such transactions.
"We've got a situation where card networks will be extremely reluctant to move away from signature, although the only way you can significantly mitigate fraud is with a PIN," Holland said. "This is indicative of the way card networks are wed to signature interchange rates: the revenue they get from that probably far outstrips the amount of fraud they get because of the signature compared to the PIN."
Holland added that he thought interchange profits were preventing the United States from moving to a more sophisticated system for protecting consumer card data, for example the Europay/MasterCard/Visa (EMV) chip-and-PIN system used in Europe. He noted that the United States "will eventually be the last developed country in the world without EMV."
Rianda, however, said other factors were more likely impediments to progress. "I think it's just American reluctance to adopt new technology," he said. "It's a whole different mentality. Every year I go to [the Electronic Transactions Association's annual meeting], and every year there is some new technology that's supposed to revolutionize things, and every time it's failed miserably - at least in the United States."
Rianda added that Best Buy's boycott could be in violation of industry regulations. "How can Best Buy do that with the honor all cards regulation, and are they potentially violating their merchant agreement?" he said. He added, however, that "when somebody does something like this out in the public, it wouldn't be the brightest thing" for Visa to respond by imposing a fine.
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