Retailers to Banks: Give Us Chip and PIN, Electronic Checks

Executives at three of the largest payment-generating retailers - Walmart, Best Buy and T-Mobile - were on hand at the NACHA Payments conference this week to tell bankers what they want and the trends they see on the horizon.One thing Walmart wants is chip and PIN cards, in other words debit cards with a computer chip (rather than a magnetic stripe) embedded in them containing cardholder information. "Later this year, we'll accept one chip and PIN program if not two in the U.S.," said Mike Cook, vice president, finance and assistant treasurer at Walmart. "Walmart stores already have the hardware to accept chip and PIN. Chip and PIN may not work for a particular bank, but it works for us." PIN debit is Walmart's most-used payment product; signature-based credit cards are the store chain's biggest area of fraud.

"The U.S. hasn't embraced chip and PIN whereas other countries have," pointed out Monica Zaborac, treasury director at T-Mobile USA. "The fraud rate is significantly lower for chip and PIN. The U.S. is becoming the weakest link in card fraud." She also noted that "banks need to listen to what merchants are asking for; if they don't, other providers will step in."

Best Buy recently trialed Visa's contactless card, but shut it down as a result of disliking the merchant fees and the signature requirement of that program. It is now testing contactless credit card stickers. "We have relationships with all the players in mobile space," noted Dee O'Malley, director, financial services at Best Buy.

Walmart would also like to be able to accept electronic checks, Cook said. At Best Buy, there's intense interest in electronic checks. But at decision time, "It comes down to how does the customer want to pay," says O'Malley, rather than what Best Buy wants to do. One example of this is the company had been trying to abandon its layaway plans, but during the economic downturn, customers insisted on a revival of these plans.

Asked about payment trends they're seeing, O'Malley said at Best Buy stores, use of credit and debit cards has strongly increased to close to 70%. Mike Cook at Wal-Mart described debit growth as "phenomenal." However, at T-Mobile, Zaborac said "cash is still king," check use has declined to below 10%, and credit card use is slightly down to 35%.

These retailers are trying certain payment innovations on their own. T-Mobile has gravitated from giving out rebate checks, which were often cashed at check cashing places, to rebate cards that can be used at retailers such as gas stations and restaurants.

Walmart's Cook reported on the company's recent rollout of a prepaid payroll debit card. "Last year, of our 1.4 million associates, only 48% were participating in electronic direct deposit," he said. "Eight months ago, we introduced a prepaid payroll card, and penetration on a voluntary basis has reached about 90%."

Best Buy has been developing a global methodology for cards. "As we go into each market, we try to learn," O'Malley said. In China, it can take eight days to get a credit card approved. Best Buy created a process in China where people can apply and get approved in 45 minutes.