Retailers slam banks' chip card stance

The migration to chip card technology will cost the retail industry millions, with no long-term financial benefit, say several local retailers.

They say banks expect them to carry the hardware costs of moving over to the Europay, MasterCard and Visa (EMV) chip cards, which requires retailers to upgrade their point-of-sale equipment.

However, they claim banks refuse to pass on the benefits of the reduction in fraud expected from the more secure card technology. "They [banks] insist on charging the same merchant fee on chip as for magnetic strip cards," says a Shoprite spokesman.

The EMV Forum of SA confirms retailers must foot the bill for new card terminals and cannot expect to immediately benefit from the reduction in fraud resulting from the new cards.

Retailers, says the forum, will fork out the same card transaction fees for the new chip cards as they do for the less secure magnetic strip cards.

"There will be no immediate reduction in charges," says Walter Volker, head of group payment systems at Absa and chairman of the EMV Forum.

He says the calculation of card transaction fees is a complex process. "Charges are dependent on the type of transaction, the customer profile, the channel that is used and the product accessed."

Pick 'n Pay and Shoprite argue that since retailers do not pay for losses incurred as a result of fraudulent credit card activities, the migration to EMV chip cards offers no direct benefits to retailers.

"Losses due to card fraud are the risk of the acquiring bank," says Dennis Cope, Pick 'n Pay group FD.

The banks stand to derive the lion's share of the benefits from the EMV migration, Cope says, adding that retailers can only benefit if the banks pass the savings on through a reduction in fees.

However, he concedes that because of the compliance to the new standard, Pick n' Pay is in a position to offer a more secure service to customers. "We are able to provide the appropriate infrastructure that will assist our shoppers to safely and conveniently use their credit cards in our stores."

He notes: "There is general consensus among South African retailers that banks and card associations need to recognise the enormous cost the retail industry has had to bear to date."

Shoprite reveals it has spent R30 million on point-of-sale terminals. Pick n' Pay is unwilling to disclose an exact figure, but says the amount is in the "millions of rands".

"Given the expected reduction in fraud and subsequent losses," says Cope, "banks should be bearing some of the liability and responsibility of the costs by sharing savings with retailers through reduced merchant fees."

A Shoprite spokesman says negotiations with banks to pass on the benefits of a reduction in fraud have proved futile.

Jay Curry, Massmart's group commercial executive, says card fraud impacts the costs of retailers and banks, as part of the cost of fraud is shared with a retailer through high card transaction charges from the banks.

He argues banks should pass on saving to retailers; otherwise the whole EMV migration process would be unfair. "If the implementation of EMV results in the reduction of card transaction charges in the future, as the burden of card fraud on the banks is reduced, then the EMV exercise will have been fair on retailers; if not then the reverse will have been true."

However, Volker maintains that while banks will not reduce the card transaction fees charged to retailers, migration to EMV chip cards will benefit everybody. "Increased security and new functionality will benefit the current stakeholders by putting less money into the pockets of the fraudsters."

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