The Gimlet Eye: Who Controls Consumer Payments?

The question posed in our headline this month is one we used to lead off our cover story last October, “Merchants Zero in on Payments.” At the time, merchants were fresh off a signal victory over the banks and the networks in a bruising Congressional battle over debit card interchange, and the conclusion of our reporting was that the sellers of goods and services who face the paying consumer every day are in an unprecedented position of power over payments.

Indeed, as our story pointed out, the merchants’ debit victory, which hands them more control over routing decisions as well as interchange relief, comes at a crucial time in the payments business as backers of EMV and mobile payments seek to introduce and establish new methods of exchanging value electronically.

The passage of time, even so short a time as five months, can erode such positions in a dynamic industry like payments. But here in March 2012 we see no need to revise our assessment. Indeed, if anything, our conclusion has been confirmed even more by developments in the business. Backers of mobile-payments technologies, from the smallest startups all the way to such titans as Google Inc. and the giant wireless carriers, know they must please merchants or their huge investments will be for naught. And merchants know they have power they can leverage even after they agree to install the equipment to make such technologies work in their stores. They, after all, can decide when to switch it on.

Make no mistake, merchants are aware of this power and are making themselves heard. In January, a trade group called the Merchant Advisory Group, which represents more than 50 major retail companies, issued what it calls a “road map” for electronic payments in the United States. The document leaves no doubt about such matters as, say, how EMV chip card transactions should be authenticated. Though some major banks and Visa Inc. seem to have gone wobbly on PINs, the road map gives full-throated support to the chip-and-PIN flavor of EMV.

Indeed, in the spirit of a bill of rights, the road map’s assertions rise from a painful conviction that certain constituencies in payments have been accustomed to imposing critical decisions on certain other constituencies, including merchants. The document asserts, for example, that “merchants and issuers should have the right to determine the range of payment types, communication protocols, and devices they will support…rather than having such decisions forced upon them.”

After years of more or less knuckling under on payments questions, merchants have new influence and are prepared to exercise it. As time passes, that position only seems to gain strength.

John Stewart, Editor

john@digitaltransactions.net