Holiday Shopping Has Changed. Now Payments Need To.

Christmas has come early this year – at least according to Americans’ spending. Recent data shows that shoppers are taking advantage of sales and buying their gifts further in advance. Discover Financial Services even called October “the new December,” due to earlier-than-normal spending related to holiday shopping. 

And these “early bird” shoppers are buying more of their gifts online than ever before. CBRE Retail Research predicts that holiday e-commerce sales growth will more than double, increasing to 40 percent of total retail sales in November and December of 2020 (up from only 14 percent during the same time in 2019). Sixty percent of shoppers now plan to buy holiday gifts online, according to the National Retail Federation’s annual survey. 

How, then, do we ensure the payments industry can keep up with consumers’ rapidly changing behavior? Amid so much uncertainty, there are two inevitabilities: We must prioritize security and we must encourage competition, which together lead to the creation and implementation of safer, more user-friendly payments technologies. 

This holiday season will be unlike any other, with a continued e-commerce boost due to COVID-19. In fact, ACI Worldwide, Inc. anticipates e-commerce transactions will jump 27 percent globally in the fourth quarter of 2020 compared to the same period last year. But with increased e-commerce, ACI Worldwide anticipates an increase in fraud costs, already reporting a $9 increase in the average ticket price, or the average amount of sales per customer, for fraud attempts in 2020 compared to 2019. To combat increasingly sophisticated online fraudsters, members of the U.S. payments system must work together to implement standards that are safer and more secure for all industry stakeholders.

While e-commerce activity soars, consumers’ card preferences also appear to be changing. Visa and Mastercard experienced a 23 percent increase in debit card purchase volume year over year, while credit card purchase volume was down 8 percent, according to The Wall Street Journal. Debit cards are a more secure method of in-store payment thanks to chip-and-PIN’s two-factor authentication, protecting the buyer from point-of-sale card fraud. 

But with so many transactions moving online, it has become increasingly important for debit cards to be made more secure online as well. Currently, no multi-step authentication is required for online purchases, even though the technology is available. Debit card authentication is an area of the payments industry where the major card companies have neglected to impose necessary security measures. Debit benefits merchants too, allowing them to choose how customers’ transactions are routed.

EMVCo, the self-appointed standards-setting body run by Visa and Mastercard, has worked to extinguish routing competition for their own benefit, leading to less secure payment options for debit cards. Without competition in routing, large card brands will continue to dominate the market and charge merchants high fees for each transaction. 

As new trends in technology and consumer preferences change the payments industry, there is an opportunity to reverse the trend in standards-setting processes, to make the U.S. payments infrastructure the strongest, most innovative and most secure in the world. But currently, EMVCo often sets standards for the payments industry without the input of any merchants or other standards-setting organizations. 

For example, EMVCo recently pursued expanding the 3-DS-based framework developed by Visa without consulting other standards-setting groups or merchants. 3-DS, or three-domain secure, was created to help prevent fraud when using credit and debit cards to make e-commerce purchases online. With this technology, the card companies retained control of the authentication process and prevented other payment methods from participating. This is a self-serving move by EMVCo that will force implementation of its security protocol and inhibit merchant input into the authentication process. This only serves to increase merchants’ payment processing costs and inhibits true security innovation – which, judging from the ACI data alone, is something the industry desperately needs.

Rapidly changing times and an unprecedented holiday shopping season calls for a greater emphasis on more secure payments – ensuring consumers don’t fall victim to fraud – and greater collaboration and competition in the payments industry – leading to new, innovative payment technologies that benefit merchants and customers alike. 


Douglas Kantor is counsel to the Secure Payments Partnership and partner at Steptoe & Johnson LLP.

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