Point of Sale

Fast EMV, Mobile Starbucks And Under-Fire Payday Lending

Last week in payments was notable for having one of the more colorful beginnings and endings in recent memory.

Following on the news that Alexander Hamilton was holding onto his spot on the $10, last week got kicked off with the announcement that the $20 (not quite) founding father Andrew Jackson is facing eviction — from the front of the bill anyway. The seventh president will be relocated to the back of the bill, while Harriet Tubman will take the spot on the front. If only he had his own musical on Broadway…

The week ended with an equally eye-catching story. The hacked clients of Adultery-as-a-Service firm Ashley Madison were informed by a judge that while they are welcome to seek reparations in court, they must do so under their real names. Or, at least, some of them must. Talk about a prisoner’s dilemma.

But between the flashier bookends of the week, there was data up for grabs. Visa is determined to make EMV faster, Starbucks wants to make getting that cuppa joe faster, too, and is crushing it with mobile order ahead and the CFPB might be moving closer to having a fast exodus of the payday lending business once its rules drop.

So, here’s what you need to know to be trending in payments this week.


EMV’s Second Phase

Since the clock “struck twelve” in October, so to speak, and the EMV liability shift officially kicked in, the headlines with respect to its deployment have been mixed. Some merchants have made the move, but many have not, especially smaller ones. Fraud is moving en masse online, though, as in-store methods are getting harder and crooks look to find the weakest link.

According to the PYMNTS/Forter Global Fraud Attack Index, online fraud attacks have jumped by 11 percent since the shift in the U.S. Digital goods retailers — those who sell games, songs, movies — have been hit the hardest, with a 304 percent increase in fraud attacks since the liability shift. Overall, year over year, online fraud attacks have spiked 215 percent.


And, for those merchants using EMV in-store, the chorus of complaints are familiar, with one favorite refrain: It’s too slow. And while slow is a relative term, adding perhaps 30–45 seconds to a transaction over the old swipe method, those seconds tick by slowly for consumers who can not fully understand a technological improvement that seems to have made their experience at the point of sale worse. While all the while being subjected to the neverending “PLEASE DO NOT REMOVE CARD” message on the terminal that seems to last for minutes.

Enter Visa and its announcement last week of its Quick Chip for EMV solution, designed to speed up checkout times and make “the dip” as fast as “the swipe.”

Stephanie Ericksen, VP of global risk products at Visa, told Karen Webster that the new technology will allow EMV chip card processing to closely replicate what U.S. consumers have become used to with mag stripe cards, which is not only the speed at checkout but the ability to “dip” the card and put it back in their wallet while the transaction goes forward.

“With Quick Chip, consumers insert their chip card into the terminal, which automatically generates the EMV cryptogram [that secure one-time code]; the card can then be removed from the terminal while the rest of the transaction continues,” Ericksen points out.

According to Ericksen, “quick dip” tech is already an existing EMV process, but it is just not widely used.

“It’s a rather simple change to the terminal software, and it’s something that would allow merchants of any type to be able to speed up their contact chip transactions without major changes,” Ericksen explained, noting that the impact for merchants will depend on their middleware provider and what that integration is but there is rather minimal effort needed.

“The great thing about Quick Chip is that there is no change needed to the card or to the issuer processing. There’s also no change to the merchant screens for the cardholder and no additional education and training required for the consumer or for the merchant’s sales associates,” she added.

Quick Chip is specific to Visa; however, the door is still open for it to one day become a standard practice for EMV across all the networks.

Ericksen said it is up to other industry players to determine exactly how Quick Chip could fit into their strategies and requirements, but that it remains “open for anyone to use and it would work on all Visa cards, whether it’s a debit card or a credit card.”

“We’ve been socializing this a lot with partners and clients and also within the EMV migration forum so that all of the participants, including the other payments systems, are aware of what this is and how it works,” she said.

Hip hip hooray.


Starbucks Steals The Mobile Show (Again)

When it comes to its pursuit of mobile, there may soon come a point that it will become more efficient to simply play Queen’s “We Are The Champions” during Starbuck’s quarterly earnings calls than it is to actually go through all the details.

As of now, Starbucks is seeing an average of 8 million monthly transactions for its Mobile Order & Pay service — 2 million more, on average, per month than Starbucks reported it was seeing in Q1.

And that’s driving a huge shift to mobile. Starbucks reports that 24 percent of its total payments are now made on mobile, up from 21 percent a quarter ago.

Yes, folks, that is a huge move in just three months.

“Loyalty, technology and innovation are continuing to fuel our digital flywheel and propel our business forward all around the world,” said CEO Howard Schultz.

Loyalty, however, can be a tricky thing, a fact Starbucks is learning about in the backlash caused by switching up its rewards program to favor amount spent over number of drinks bought. But Starbucks’ leadership team noted during its earnings call with analysts that it does not expect to see a significant impact on sales as a result of that change.

In fact, the last round of figures demonstrated that Starbucks’ rewards program has grown 16 percent in a year’s time and now totals 12 million members. With membership picking up another 8 percent in Q2 versus Q1. The company has added 900,000 Starbucks Rewards members since Q1 alone.

Overall, on the earnings side, Starbucks reported that comp. store sales were up 7 percent in the U.S. and 6 percent globally. Revenues are up 9 percent to a record for Q2 — $5 billion.

Transaction growth overall was up 5 percent. Operating income increased 11 percent to $864 million.

So, a good time to be making coffee and, apparently, an even better one to be selling it via a mobile app.


The CFPB’s Latest Round Of Payday Lending Complaints

The year 2016 is now exactly 16 weeks old and starting its 17th today. During that time, payday lending has managed to make an appearance on our pages at least once a week so far. This is not simply due to some extreme in-house enthusiasm for the topic. The CFPB is set to release draft regulations for the short-term lending industry any day now, and anticipation (and emotions) on the subject is running high.

So far, Congress has convened sessions, shareholders have spoken out, members of Congress have changed sides and the White House has even managed to tacitly evoke the disapproval of the Almighty. It has been colorful to say the least.

Which makes the CFPB’s decision to add some new color to the fire this week very surprising — or very unsurprising, depending on what one thinks of the process so far.

The Consumer Financial Protection Bureau issued a new report that indicates that the high cost of payday loans is even higher than most people think.

The issue rises because online lenders tend to collect payments directly from consumer banking accounts — sometimes, multiple times if the first attempt doesn’t work out. As a result, half of all consumers surveyed by the CFPB were found to be racking up an average bank fee of $185 in penalties. Of that half, about a third face account closures as an outcome.

The study also found that hitting the same account multiple times only hurts borrowers; it doesn’t help lenders actually get their funds. After three failed attempts, the lender is still owed, and now, the customer has overdraft fees that make it harder to pay.

“Taking out an online payday loan can result in collateral damage to a consumer’s bank account,” said CFPB Director Richard Cordray. “Bank penalty fees and account closures are a significant and hidden cost to these products. We are carefully considering this information as we continue to prepare new regulations in this market.”

The data in the report was drawn from an 18-month study of consumer payday and installment loans done between 2011 and 2012, taken out over 330 lenders. The focus was on the methodology that lenders use when attempting to collect their owed funds.

Except, this data only tells a small part of the story.

As Karen Webster writes in her column this week, half of the accounts the CFPB looked at over 18 months didn’t have any overdraft fees at all. They got their loans and paid them back from their bank accounts. More than two-thirds have no more than one overdraft over 18 months.

She writes that suggestions that banks give consumers who basically ask the bank to front them to repay their loans are a reprisal of the CFPB’s familiar tune: Banks and payday lenders are out to sucker-punch the consumer, who should basically get everything they want or need from the banks — who are too big anyway — for free.

The CFPB has been considering a rule change that would ban short-term lenders from making more than two unsuccessful attempts in succession on a borrower’s checking or savings account. Yep, as Webster says, so that everyone loses — all because a small number of consumers who are the problem might decide: “What’s the point of being a good citizen when the banks can’t penalize them for bad behavior?” Then, everyone who’s a good citizen will end up paying more — or not have access at all — if payday lenders say, “Never mind, I have other things to do with my money.”

That rule is likely to be packaged into forthcoming guidelines as opposed to being issued alone. Some analysts noted that the release of this report is likely an attempt at “softening the ground” pre-release.


So, what did we learn this week? It’s a good time to be a retailer accepting EMV since it will get faster and likely just in time for the holiday spending season. It’s a good time to be Starbucks since it’s mastered the mobile payments app. And it’s probably not a great time to be a short-term lender since all indications are that the new regulations are going to be the start of a long and ugly fight.

Want to know more about that ugly fight? Check in tomorrow for PYMNTS’ Alt-Lending Tracker, where we’ll be starting our payday loan primer in advance of those rules coming out.

Same bat time, same bat channel.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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