The first time you try to checkout at a store with your chip and PIN bank card can be a bit traumatic. Gone is the familiar swipe, which is now replaced by inserting and leaving your card in the terminal. The machine may make a horrible screeching noise if you remove your card too soon, so follow the onscreen instructions carefully. Next, enter your PIN and wait. After what feels like an eternity, you can remove your card, take your receipt, and leave the store.
That customer experience has caused major problems for retailers, prompting Visa (NYSE:V) and MasterCard (NYSE:MA) to roll out software upgrades last month that aim to improve the checkout experience. The response from retailers has been lukewarm at best.
Why the sudden schism between retailers and these two payment processing behemoths? To me, it looks like neither Visa nor MasterCard has prioritized the chip and PIN checkout experience, and to be honest, I don't blame them.
This software upgrade will improve the chip and PIN experience
The goal of the software upgrade is to reduce transaction times, make the process more familiar to consumers, and still maintain the security and fraud prevention benefits of the technology.
Visa and MasterCard each claim that the new software will reduce the transaction time required to process a chip and PIN card to a level comparable to a transaction with the older magnetic strip process. The first version of the chip and PIN software increased transaction times by 10-12 seconds. That seems like an insignificant increase, but during peak hours at busy retailers it led to ballooning lines, angry customers, and, ultimately, lower sales.
Second, the new software will allow consumers to quickly insert and remove their cards at the terminal, rather than requiring the card to remain inside the machine while the transaction processes. The dip and remove process is comparable to the familiar swipe, requiring only a subtle change in consumer behavior.
The chip and PIN rollout highlights a disconnect between the payment processors and retailers
Retailers, while happy that Visa and MasterCard have at least made this effort, were quick to point out the many shortcomings of the effort from the onset of the chip and PIN rollout.
Some questioned why the software wasn't originally written to be faster and mimic the swipe motion last fall when the transition to chip and PIN started. Others complained that the upgrade process is too complex; it will require two separate software packages to fully upgrade a terminal -- one upgrade from Visa and one from MasterCard.
Without a single industry standard, retailers are concerned that the rollout of the upgrades could be inconsistent across stores and result in a low adoption rate. That would force consumers to check out one way at some retailers and a different way at others, all with the same card.
Worse yet, if a terminal is upgraded for one of the brands but not the other, it would require different checkout processes for each brand in the same store at the exact same terminal. This would almost guarantee increased confusion at the register and even longer wait times.
Despite the way it looks, Visa and MasterCard are not asleep at the wheel
In announcing the software upgrades, Visa and MasterCard each patted themselves on the back for working closely with retailers to understand their issues and to resolve them. While that's true, it is odd that the companies did not anticipate and solve many of these problems ahead of time. The lack of a single industry standard is also vexing.
To me, the choppy rollout did come as a surprise, but I don't view it as a significant problem for either company.
First, Visa and MasterCard rightly prioritized the security and fraud prevention technology ahead of a short increase in transaction times. The entire purpose of transitioning to chip and PIN is to improve security; it would have been a true disaster had the technology failed on that, its primary purpose.
Second, Visa and MasterCard's business model is not dependent on a fast and fluid retail experience. It's about increasing the number and volume of transactions on their respective payment networks, regardless of the source of that transaction.
Visa and MasterCard don't care if you shop online, in-store, or on your smartphone. They don't care if you use your physical card, a mobile wallet, or smartphone tech like Apple Pay or Android Pay. Visa and MasterCard make their money by facilitating any and all of these transactions on their payment networks. If you use your Visa account to buy with "one-click" online, Visa gets a cut. If you use it at the grocery store, Visa gets a cut. If you use your Visa account whenever you use Apple Pay, Visa gets a cut. If you swipe, Visa gets a cut. If you dip at a chip and PIN terminal, Visa gets a cut.
Is it important for Visa and MasterCard to maintain strong relationships with terminal manufacturers, retailers, and the general public? Would it have been a better outcome all around had the transaction time and checkout process been better thought out and developed prior to last fall's roll out? On both accounts, the answer is an unequivocal "yes."
However, will the problems during this transition cause either company lasting harm, financially, reputational, or otherwise? I doubt it very seriously.
The chip and PIN process will eventually become ubiquitous, consumers will adapt, and the controversy will subside. In the meantime, consumers will continue using their Visa and MasterCard branded accounts unabated, whether they're required to swipe, dip, or otherwise.