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COMMENTARY: How Honor-All-Wallets Policies Are Hobbling Contactless Payments
August 23, 2017

By Mark Horwedel

The Merchant Advisory Group has long warned its members about the many pitfalls associated with the global card brands’ contactless initiatives, but none of these initiatives conjures up more concerns than their honor-all-devices/wallets policies.

Image Credit: Merchant Advisory Group

Horwedel: Honor-all-devices is but one of many issues and concerns merchants have with the card brands’ "reckless" approach to contactless so far.

These policies reflect a bold effort by the brands to extend their traditional honor-all-cards policies to fifth parties outside the historical four-party network model. As payment devices evolve from simple magnetic-stripe cards to devices equipped with powerful computer chips, the range of activities that might be conducted by chips that were originally conceived as simple payment processors grows exponentially.

Sophisticated technology companies partnered with traditional banks or rent-a-BIN banks are poised to disintermediate merchants by using the data collected by the chip (ostensibly to fight fraud) to target customers with product offerings tailored to customers’ specific needs. Honor-all-wallets translates into a rule that bars merchants from rejecting wallets from these fifth parties.

We have always said that some sophisticated technology companies already know who you are (name, phone number, email address) and where you are (where you live, work, shop), but if they found out what you actually bought, then they could disintermediate merchants altogether. A customer's regular purchases could be automatically fulfilled by a tech company by working with the manufacturers to ship directly to the customer's home.

Now, we understand that events playing out in China, while not directly associated with chip purchases, already illustrate the validity of our concerns.

As we understand it, when the AliPay mobile-payment service launched in China, it initially offered promos to merchants to get customers to shop and to get merchants to participate. These promos were funded by AliPay. Late last year, AliPay stopped these merchant promos and switched to a product focus. It started offering a variety of coupons, which were funded by AliPay as well, on specific items ($1 off Tide, 50 cents off Kraft mayo, etc.).

When customers started redeeming the coupons, AliPay could identify their purchases by the coupons they used. So now they know what products and what brands customers are purchasing, and at which shops. Now Alibaba is using that information to make targeted offers to fulfill the items customers most frequently purchase.

Today, it’s safe to assume Chinese merchants have the right to reject a partner that might disintermediate them. Tomorrow, under honor-all-wallets, Chinese and U.S. merchants would have no choice.

The merchant community looks forward to enhancing the customer’s shopping experience by unlocking the capabilities of chip-powered devices at the point-of-sale and by expanding the shopping venues made available by contactless devices. Unfortunately, honor-all-devices is but one of many issues and concerns merchants have with the card brands’ reckless approach to contactless so far.

The brands’ failure to address merchant requirements, failure to thoroughly vet and close avenues available for fraud, failure to employ the two-factor authentication provided by PIN when they have nothing to offer to replace it, and their cavalier attitude towards compliance with Durbin debit routing have all slowed the progress of contactless acceptance by major merchants.

That makes honor-all-devices just the latest in a long list of issues that continue to plague contactless acceptance in the United States.

—Mark Horwedel is chief executive of the Merchant Advisory Group.

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