It's been seven months since COVID-19 forced Ohio's 950,000 small businesses to quickly adapt and innovate. Curbside pickup for retailers, contactless carryout for restaurants, and even virtual test drives for car dealers are now not only necessary, but expected.
But convenience is not the only thing that should be top of mind for Ohioans.
Payments security is key, given our current economic climate. Over 644,000 Ohioans have filed for unemployment since March — now would not be a great time for them to be a victim of card fraud. But the U.S. leads the world as the most credit-fraud-prone country. And the problem is getting worse — fraud cases doubled from 2017 to 2019. One processor shared that May 2020 was a record-setting month for card fraud attempts — they saw attempts jump 32% month over month.
Making payments more secure isn't as simple as deploying the latest and greatest technology. EMVCo, the payments standards setting body run by card companies like Visa and Mastercard, stands in security's way. This duopoly is putting their profits over payment card security. It's also putting the survival of Ohio's 7,000 retailers, and the 1.5 million jobs they provide, at risk.
Innovations to make payments more secure exist, but EMVCo is hampering their deployment.
One example is "tokenization." The concept is simple: During checkout, your credit or debit card's account number is replaced by a more secure "token" number. Open, proven tokenization standards exist, but EMVCo rejected those and launched their own proprietary specifications protecting Visa and Mastercard's dominance.
Another example is "end-to-end encryption." This keeps your data safe from the time your card is dipped or tapped to the time it reaches the intended recipient. But EMVCo's encryption standards were developed without any input from merchants or consumer protection groups, again benefiting Visa and Mastercard.
One innovation is especially relevant in the COVID-19 environment: "near-field communications," or NFC payments. NFC is the technology that lets you "tap" a card or phone to pay at checkout. Unsurprisingly, usage of "contactless" payments like tapping an NFC-enabled card have surged in the U.S., increasing by 150% since March 2019.
But while NFC may be more convenient for customers, it can be a headache for merchants. It can be unwieldy and expensive, especially for mobile payments. Worst of all, it was forced onto merchants by EMVCo — helping Visa and Mastercard, rather than letting the market decide what next-generation payments type was most secure.
This behavior is unfortunately nothing new. EMVCo has routinely sacrificed payment security to increase Visa and Mastercard's transaction volume. About five years ago, "chip" cards began replacing the incredibly outdated "magnetic strip" cards. (That's nearly 20 years after "chip" was introduced, if you're curious.) Rather than implementing the more-secure "chip-and-PIN" authentication standard that's reduced card fraud across the globe, EMVCo insisted on "chip-and-signature," all to protect Visa and Mastercard's market share.
The way EMVCo rolled out "chip" cards here in the U.S. also hampered competition in the payments space. Debit networks facilitate payments made between card-using customers and merchants. U.S. debit networks compete for both bank and merchant business. This competition has driven innovation and greater security throughout the industry. However, yet again, EMVCo chose profits over security and allowed Visa and Mastercard to essentially block merchant access to any of the competitive debit networks. It took the Federal Reserve and Federal Trade Commission stepping in before Visa and Mastercard changed their practices to actually compete in the open market for business and allow a retailer to pick the debit network that offered the greatest level of security to run transactions.
René Pelegero, president and managing Director of the Retail Payments Global Consulting Group, argues, "EMVCo's ownership by the credit card companies has put profits ahead of security ... and has left the United States with a fraud-prone payments card system even as fraud has been reduced in the rest of the world."
We agree — and we deserve better. When given a choice, Visa and Mastercard have picked profits over security innovation every time. We need open standards — EMVCo must allow businesses to meaningfully contribute in standards setting so the U.S. payments ecosystem can adapt to the COVID-19 environment and keep payments secure.
Graff is vice president of operations for Columbiana Foods and past chairman of the Ohio Grocers Association.
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November 01, 2020 at 04:00PM
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Personal View: Anti-competitive behavior from Visa and Mastercard is hurting payments security - Crain's Cleveland Business
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