Best Buy Cuts off Visa Contactless with Little Risk to Sales

The struggling U.S. contactless card market took another blow late last year when leading consumer-electronics retailer Best Buy Co. Inc. stopped accepting the Visa payWave contactless card, reportedly because it objected to paying Visa Inc.'s signature-debit interchange rates. Best Buy's action probably cost the retailer nothing in lost sales but sends a message of displeasure about high payment card acceptance costs, one analyst suggests. News of the development came last week from the StorefrontBacktalk online newsletter, which reported that Best Buy was unhappy with its contactless card initiative because Visa wouldn't allow PIN-based authorizations on payWave transactions. Instead, payWave transactions are assessed higher signature-debit interchange rates, though a signature typically is not required. Richfield, Minn.-based Best Buy did not respond to Digital Transactions News' requests for comment. U.S. contactless cards have a chip that communicates with a special contactless card terminal, but they also have the magnetic stripe found on conventional debit and credit cards. “While we're disappointed Best Buy will no longer offer its customers the convenience and speed of Visa payWave, 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 said in a statement. “Visa values its long-standing relationship with Best Buy, and we look forward to working with the retailer to grow our mutual businesses.” A source close to Visa tells Digital Transactions News that Visa made a business decision not to support payWave with PIN debit. “The feeling was that prompting for PIN reduced the benefits of speed and convenience,” the source says. Indeed, the time needed to enter a PIN undercuts the arguments for taking contactless cards, notes Aite Group LLC senior analyst Nick Holland. “The case of speed and convenience is killed” if PIN entry is required or normal debit card signature requirements aren't waived, he notes. That said, Holland wonders why Best Buy installed contactless terminals in the first place. Contactless transactions are considered best suited to high-throughput, low-ticket merchants, such as fast-food restaurants, concession stands in stadiums, and transit stations, where transaction speed is essential. By contrast, checkouts at electronics stores like those of Best Buy naturally take more time. Plus, the company sells many products costing more than $1,000 and most of its customers very likely have access to at least one credit card. “I've got to really wonder how many people have actually paid with a contactless card in a Best Buy,” says Holland. “If you're buying a 52-inch plasma TV, you're not going to rush through the checkout anyway.” In other words, “it's zero risk” for Best Buy to dump payWave, he says. Visa–and MasterCard Inc. with its PayPass card–have subsidized many merchants' contactless terminal deployments to seed the market, and Holland suspects Best Buy may have paid little or nothing for its contactless-accepting hardware. According to StorefrontBacktalk, Best Buy started installing contactless terminals in August 2007 and they were in all of its 1,000-plus U.S. stores by April 2008. But last July, Best Buy said it was evaluating continued acceptance of payWave “in light of recent price increases,” apparently a reference to Visa's 2009 interchange schedule that took effect last spring. The chain said, “Several discussions with Visa produced no agreeable changes” and it began turning off payWave acceptance store by store in October, completing the job in November, according to StorefrontBacktalk. The chain will continue accepting other networks' contactless cards. Interchange, the transaction fee the bank card networks set and is paid by merchant acquirers to card issuers, accounts for two-thirds or more of most merchants' payment card acceptance costs. With merchants large and small complaining about credit and signature debit card acceptance costs and pressing Congress to regulate interchange, Best Buy's decision to shut off payWave adds one more voice to the chorus of protest, Holland suggests. “If anything, it might empower some of their peers” to take similar actions, he says. Despite that, Holland doesn't believe the card networks will accept Best Buy's argument that PIN-debit interchange rates should be applied to contactless card transactions. Signature-debit interchange is too lucrative for the networks' core customers, card-issuing banks. “I don't think Visa or any other network is prepared to back down,” Holland says. A few bank card issuers have pumped out cards with contactless chips in recent years and about 60,000 U.S. locations accept them (Digital Transactions News, Jan. 5). But the market has been slow to develop, in part because the card networks waive signature requirements for many small, low-risk credit and debit card transactions. That means a conventional payment card works just as fast as a contactless card.