Could Visa’s New No-Signature Rule Hurt Contactless Payments?

Visa Inc.'s announcement this week that starting this summer it will no longer require signatures for transactions of $25 or less at most U.S. merchants heralds a policy that will result in faster and smoother transactions but could also undermine the payments industry's move toward contactless technology. “The merchant proposition [for contactless] is pretty much negated at this point,” says Nick Holland, a senior analyst at Boston-based Aite Group LLC who has closely followed contactless payments. Under Visa's new policy, which takes effect in July, about 98% of more than 800 U.S. merchant categories logged in Visa's system will be eligible to accept Visa cards issued by U.S. banks without a signature for tickets at or under $25, up from about 3% currently. That will open the signature waiver to hundreds of thousands of additional merchants, including such categories as discount stores, according to Visa. The move extends Visa's current no-signature rule, which covers some 26 merchant categories. These range from parking lots to bakeries to car washes, fast-food restaurants, newsstands, gas stations, and video-rental stores. Visa says the new policy will mean faster and more convenient payments for cardholders. It cites a survey indicating that 69% of respondents cite either speed or convenience as the chief reason to use a credit or debit card. The card network also says the policy will help issuers penetrate cash-dependent markets. Indeed, some 75% “of cash transactions in the U.S. are less than $25, offering additional growth opportunities for electronic payments,” says a Visa spokesman in an e-mail message to Digital Transactions News. But observers like Holland argue the move will hobble contactless payments, a technology that has been embraced by some merchants but has struggled to win mainstream acceptance among either retailers or consumers. Visa, with its payWave program, and MasterCard Inc., with its PayPass platform, have both promoted contactless payments over the past five years as a way to speed up card transactions and pave the way for mobile payments at the point of sale. With contactless technology, radio waves transmitted by a specially equipped chip card communicate with POS readers, eliminating the need for a card swipe and speeding up tender time. Faster transactions can allow cash-heavy, high-throughput merchants to accept cards in place of cash. But card swipes without signatures are just as fast as contactless waves or taps, Holland argues. “Why would any merchant want to invest in a contactless reader when they get 99.9% of the benefits with a signature waiver?” he asks. For its part, Visa argues the extension of its no-signature rule and its payWave program are complementary, with the former acting as a leg up toward the latter. “Many merchants who have implemented No Signature Required have also implemented Visa payWave,” says the spokesman. “For merchants who want to improve throughput of magnetic-stripe transactions, the No Signature Program is often an initial first step, while an upgrade to contactless acceptance offers merchants the ability to accept a new generation of chip-enabled payment products…that also offer speed and convenience at the POS.” Visa's payWave program was already dealt a black eye last month when news emerged that Best Buy Co. Inc. had shut down the program in its 1,000-plus stores late last year (Digital Transactions News, Jan. 11). The giant electronics chain was unhappy with Visa's stance against allowing PIN debit transactions on its contactless platform. Like many merchants, Best Buy prefers PIN debit because it usually carries lower interchange costs than either signature debit or credit card transactions. If Visa's extension of its no-signature policy to cover virtually all merchant categories further undercuts contactless, the technology may never enter mainstream payments, warns Holland. “Contactless is becoming like the Tasmanian tiger?in danger of extinction,” he says.