Why We Need to Reform Card Not Present Transactions Sooner Rather Than Later

<div> <p paraid="675301263" paraeid="{8e0bcd13-d2e0-4658-a179-040486a799b5}{177}">By: Hannah Walker,&nbsp;Vice President, Political Affairs, FMI &nbsp;</p> </div> <div> <p paraid="39435287" paraeid="{8e0bcd13-d2e0-4658-a179-040486a799b5}{189}"><img src="https://www.fmi.org/images/default-source/photos-for-staff-use/online-ordering/20171129-fmi-home-shoot-0581r-lowres.tmb-large-350-.jpg?sfvrsn=e823786e_2" data-displaymode="Thumbnail" alt="20171129-FMI-Home Shoot-0581r-LowRes" title="20171129-FMI-Home Shoot-0581r-LowRes" style="float: right; margin-bottom: 10px; margin-left: 10px;" />Let&rsquo;s&nbsp;start with a quick story.&nbsp;When it became evident that we were headed for a nationwide directive to stay at home, I headed home to West Tennessee to be with my mother and sisters.&nbsp;During my time back in The Volunteer State, I&nbsp;introduced my&nbsp;72-year-old&nbsp;mother,&nbsp;affectionately called &ldquo;Foxy,&rdquo; to online grocery shopping. Sure, Foxy&nbsp;has&nbsp;ordered&nbsp;clothes, toothpaste, garden tools and even paper towels online, but groceries? &nbsp;</p> </div> <div> <p paraid="1059688666" paraeid="{8e0bcd13-d2e0-4658-a179-040486a799b5}{237}">We found two solutions that would work for her.&nbsp;First option,&nbsp;her local grocer offers&nbsp;contactless&nbsp;click and collect.&nbsp;Second option,&nbsp;we&nbsp;found a&nbsp;third-party&nbsp;service provider who&nbsp;will&nbsp;fulfill and deliver her order.&nbsp;Between these two solutions,&nbsp;Foxy is hooked!&nbsp;</p> </div> <div> <p paraid="1319502408" paraeid="{f80a8df9-8dc1-4c93-b1f9-f075e96a5b3b}{36}">My story is not unique.&nbsp;Millions of Americans are trying&nbsp;online grocery shopping for the first time and will continue to use it even after the stay-at-home orders have been lifted.&nbsp;According to our&nbsp;<a href="http://www.fmi.org/grocerytrends" target="_blank" rel="noreferrer noopener">U.S. Grocery Shopper Trends</a>&nbsp;COVID-19 Tracker&nbsp;data,&nbsp;21%&nbsp;of Americans&nbsp;started&nbsp;online grocery shopping during this&nbsp;pandemic.&nbsp;While these methods&nbsp;are&nbsp;great conveniences&nbsp;and essential services&nbsp;for shoppers during&nbsp;this&nbsp;time, both click and collect, and home delivery pose unique challenges for grocers. &nbsp;</p> </div> <div> <h6>The Challenges&nbsp;</h6> </div> <div> <div> <p paraid="12651554" paraeid="{f80a8df9-8dc1-4c93-b1f9-f075e96a5b3b}{123}">The major&nbsp;credit and debit card brands established&nbsp;the rules of the road retailers must adhere to&nbsp;in order to process online or &ldquo;card not present&rdquo; (CNP) transactions. The card brands treat CNP&nbsp;transactions much differently&nbsp;from when the card is presented&nbsp;in store.&nbsp;Here&rsquo;s&nbsp;how:&nbsp;&nbsp;</p> </div> <div> <ul role="list"> <li data-leveltext="" data-font="Symbol" aria-setsize="-1" data-aria-posinset="1" role="listitem" data-aria-level="1"> <p paraid="1378319670" paraeid="{f80a8df9-8dc1-4c93-b1f9-f075e96a5b3b}{161}">They&nbsp;charge retailers a&nbsp;higher fee to process&nbsp;CNP transactions than in store.&nbsp;&nbsp;For&nbsp;instance,&nbsp;a debit transaction can be up to 150% higher online than in store.&nbsp;&nbsp;</p> </li> <li data-leveltext="" data-font="Symbol" aria-setsize="-1" data-aria-posinset="2" role="listitem" data-aria-level="1"> <p paraid="1875577516" paraeid="{f80a8df9-8dc1-4c93-b1f9-f075e96a5b3b}{192}">Additionally, the card brands place&nbsp;much of&nbsp;the liability&nbsp;for CNP&nbsp;fraud&nbsp;on the retailer. This&nbsp;creates a&nbsp;double whammy&nbsp;for retailers who now have&nbsp;more expensive transactions and&nbsp;a&nbsp;higher risk of fraud liability&nbsp;when they&nbsp;offer online sales to their customers.&nbsp;&nbsp;</p> </li> <li data-leveltext="" data-font="Symbol" aria-setsize="-1" data-aria-posinset="3" role="listitem" data-aria-level="1"> <p paraid="34632756" paraeid="{f80a8df9-8dc1-4c93-b1f9-f075e96a5b3b}{229}">Retailers are often blocked from&nbsp;choosing alternative networks to run their debit transactions through online versus in store.&nbsp;&nbsp;Our friends at CMSPI, a retail consulting group, shared that&nbsp;U.&nbsp;S.&nbsp;merchants would save more than $600 million&nbsp;per annum if access to debit routing was more prevalent online.&nbsp;They also shared this number will only increase as online shopping grows.&nbsp;</p> </li> </ul> </div> </div> <div> <div> <ul role="list"> <li data-leveltext="" data-font="Symbol" aria-setsize="-1" data-aria-posinset="1" role="listitem" data-aria-level="1"> <p paraid="1903339568" paraeid="{f18cc540-6f20-41ba-9b0d-e54d2c9601c4}{3}">This pain is compounded by the fact that the card brands refuse to allow retailers, or any other stakeholder,&nbsp;to&nbsp;take part&nbsp;in the standard-setting process to help make these transactions more secure.&nbsp;&nbsp;&nbsp;</p> </li> </ul> </div> <div> <p paraid="1696802526" paraeid="{f18cc540-6f20-41ba-9b0d-e54d2c9601c4}{24}">While&nbsp;these&nbsp;policies may have made sense in the early days of the&nbsp;internet and online sales,&nbsp;today these rules&nbsp;are simply unfair and must be corrected. &nbsp;</p> </div> <div> <h6>Retailers Need a Seat at the Table </h6> <p>The&nbsp;U.S. grocery industry&nbsp;is&nbsp;investing significant capital in order to offer online sales and remote card acceptance. They invest in these services in response to consumer demand,&nbsp;and at this point in history, consumer need. It is time for the card brands to reassess their CNP rules and&nbsp;rates,&nbsp;so&nbsp;the&nbsp;policies&nbsp;better&nbsp;reflect the&nbsp;ever-evolving marketplace&nbsp;and allow retailers a seat at the table when security standards are&nbsp;established. &nbsp;</p> </div> </div> <div> <p paraid="1312609842" paraeid="{f18cc540-6f20-41ba-9b0d-e54d2c9601c4}{100}">We also need&nbsp;the&nbsp;Federal Trade Commission and the Federal Reserve to step in and enforce the federal law that gives retailers the right to&nbsp;route debit transactions through competitive networks not just in-store, but online. &nbsp;</p> </div> <div> <p paraid="187083787" paraeid="{f18cc540-6f20-41ba-9b0d-e54d2c9601c4}{120}">America is the land of innovation; we&nbsp;use&nbsp;technology in ways that were not even conceivable&nbsp;30&nbsp;years&nbsp;ago.&nbsp;These innovations also bring&nbsp;added&nbsp;efficiencies and reduction of costs&nbsp;for all parties. Unfortunately, we are seeing the opposite in the online card processing space. Antiquated rules and fee structures make it more expensive and riskier for a grocer to offer online sales. We need the card brands to step up, work with us and reduce the costs and barriers, not increase them.&nbsp;The U.S. consumer deserves this as does&nbsp;the grocery industry&nbsp;and&nbsp;its nearly&nbsp;6&nbsp;million employees. &nbsp;</p> </div> <div> <p paraid="213592807" paraeid="{f18cc540-6f20-41ba-9b0d-e54d2c9601c4}{176}">Now, please excuse me, Foxy and I have another grocery order to place! &nbsp;</p> </div> <a href="https://www.fmi.org/industry-topics/payments" class="button">More on Payments</a>