
This Verbal Confrontation Shows Why Walmart Will Never Accept Apple Pay - prostoalex
http://recode.net/2014/11/09/this-verbal-confrontation-shows-why-walmart-will-never-accept-apple-pay-video/
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zaroth
Walmart's Mike Cook asks an interesting question;

At a physical store, if you use any other mobile app, like LevelUp, then the
merchant pays the higher 'card-not-present' rate. The same transaction with
Apple Pay pays the lower 'card-present' rate. But an in-app purchase on an
iPhone still charges the 'card-not-present' rate.

Visa's Jim McCarty's response is, "Fundamentally because the payload is
different. One is a full EMV track read transaction and the other is not."

"Because it's a rule that y'all made?"

"No, because the data doesn't flow. It's why the standard was written like
that." ... and then later Jim quips... "That's the first time Mike's
complained about getting the card-present rate." which the moderator replies
"OK, that gets the best answer beer."

The format of the packet is irrelevant. The security properties are derived
from the _user interaction points_. Specifically, Alice loads her card into
Apple Pay by taking a picture of it. A week later Alice uses her phone to pay
with Apple Pay and the merchant would get a card-present rate. _Can any other
app do the same thing_? Is there an open standard which allows LevelUp (who
currently is forced to pay card-not-present) to use the same exact steps and
get the same favorable rate? If not, I think Cook has a very valid point.

Apple Pay wins by default if they are the only mobile app in town which can
get a card-present rate. I assume Google Wallet is card-not-present, for
example. Merchants won't pay a higher rate so you can use some app. Jim
McCarty specifically mentions the scale problem with changing brick & mortar
merchants card-not-present rates.

~~~
demallien
I would imagine that it is because brick and mortar merchants are a lower
fraud risk than an online property. Don't forget that visa and MasterCard suck
up fraud on both sides of the transaction.

Which is not to say that there aren't shenanigans going on, but there's a
reason that consumers really like MasterCard and visa, they both look after
customer interests, sometimes at the expense of merchants.

~~~
tomp
What kind of fraud is there to suck up at the merchant part of the
transaction? Isn't it so that if the merchant doesn't deliver, they don't get
paid?

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gambiting
In the EU, merchants have to pay for swipe card fraud. Let's say you buy
something with a swipe card, scribble a signature on the receipt, then ring
your bank few hours later saying that there is a transaction you don't
recognize. Then your bank requests the receipt from the merchant, the
signatures don't match = you get reimbursed full amount, the merchant has no
money and no goods - because in EU it is the merchant's responsibility to
check if the signatures match. If they don't, they didn't do their job
properly, therefore they have to pay.

This is the reason why pretty much nobody accepts swipe cards in EU anymore -
there's very few places which even have swipe terminals, it's all chip and
pin. The couple times when my chip didn't work, the cashier had to key in the
number of the card manually, because she didn't have a swipe terminal at the
till.

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MrJagil
I'm sorry, but what is the god damn deal with those video players? I am so so
tired of companies and sites building their own _ _always_ _ shitty video
player, and then it's like they don't even test them! And Recode! A site for
tech enthusiasts, made by tech enthusiasts! I am so confused, sitting in hazy
cloud of memories of real player...

On a mac, neither safari nor chrome will allow me to watch the video.

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zimbatm
Try removing your ad-blocker maybe ?

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lsaferite
No ad blocker here (Win 8/Chrome) and it won't work for me either.

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alkonaut
The article mentions cards linked to a customers checking account. I assume
that means a "debit card", i.e. one where transactions are deducted
immediately rather than aggregated into a monthly bill? How common are those
cards in the US?

Here (.se), most Visa and Mastercards are bank-issued debit cards, and almost
everyone would have such a card, even if they also have a credit card from
Visa/MasterCard. Is the situation the same in the US?

~~~
tombrossman
In the US you would typically get one of these debit cards automatically with
your checking account, and it works as you describe. If you want a credit card
you would have to submit a separate credit application at the same (or
different if you like) bank and that would be a completely different card with
its own account and terms. I think this is the same in most countries.

~~~
alkonaut
Ok. Guess the difference is not technical but cultural, here the debit cards
are used more frequently, and many never get a credit card. I do think we have
bonuses on many cards, but I have never found them appealing enough to switch
to a pay-later system. I prefer knowing the balance all the time. I use mine
only for work expenses and "future" expenses such as flights, where an airline
going bankrupt would be problematic if I had already paid the ticket up front.

Maybe we also have less fraud since chip+pin is used everywhere?

~~~
andybak
Same in the UK. Debit cards (with Chip+Pin) are pretty much the default

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netcan
It's interesting to think of how various technology-business complexes could
have unfolded differently f they had gotten onto a different track. What if
Google had been bought pre-IPO? Could the World Wide Web have "lost" to some
other technology, perhaps centrally controlled? etc.

You end up with a lot os scenarios where certain things get set back decades.
It's hard to imagine WWW and its internet riding siblings thriving in the same
way under some different paradigm. The creative zeal of the telecommunications
industry is not a force I would like to rely on for progress.

Anyway, I think that most "money" industries might be like the web if it
hadn't hit some lucky breaks. Financial services, ways of moving money from
one place to another are incredibly clunky, bureaucratic, expensive, difficult
to understand, slow, expensive and expensive. Credit cards are expensive,
complicated, & oligopolistic. Bank transfers are slow and bureaucratic. It's
ridiculous that heavy, stealable, physical money is cheaper to handle than
electronic variants.

This is all a very straightforward example of "transaction costs," a concept
at the centre of many basic and fundamental economics theories. Basically,
transaction costs permeate everything in economics by reducing efficiency and
limiting the velocity and cumulative volume of transactions, which are one of
the few very basic elements in the economics' periodic table (say, resources,
labour, technology, consumption & transactions… or something).

Many massive efforts have been made to reduce transactions costs in the form
of barriers to entry or international trade. Transaction costs inherent in our
financial services industry are the same sort of problem, probably even more
important.

A 10, 100 or 1000X reduction in transaction costs could have a lever effect on
the economy similar to the discovery of a new energy source, continent, new
method of communication, better legal paradigm or some other fundamental
column in an economy.

This is why I was (and still am) hoping for cryptocurrencies to succeed. Who
knows where it could go.

Whatever you think of Walmart, they are obsessed with costs and efficiency.
I'm not surprised this pushes their buttons. The suboptimal state of
electronic payment is as bad or worse than the energy industry in the worst
days of cartels.

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hownottowrite
Apple's never had any problem hiding behind rules and standards they write for
their own walled gardens. Why start complaining now?

Better to take action. Just pull their products from retailers who won't roll
over. It's what Bezos would do. They could also subsidize purchases made at
flagship Apple Pay partners. They have the cash for it. $1B in subsidies to
happy retailers would have a punishing effect on those who decided not to
play. With the thin margins in retail, that would like translate to quarterly
results questions like "why aren't you taking the free money from Apple?" Or
"How has turning down Apple Pay hurt your business? Company X reports a
healthy jump of Y."

~~~
aaronem
Young bull, old bull. Credit card associations don't overtly lean on anyone
much, and neither need Apple do so now that it's working with them. As Apple
Pay gains traction, the same effect will come into play on its behalf that
keeps merchants paying fees to take plastic -- people used to using Apple Pay
will take their business to merchants which allow them to do so, and merchants
who don't will come to understand that half a loaf is better than none.

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briandear
The idea that WalMart is paying a high percentage is nonsense. For an commerce
startup I work with, we're getting .5% from First Data. I'm sure WalMart can
do better than us. This is about something else.

~~~
thaumaturgy
Even .5% at Wal-Mart scale is a lot. Regardless, it's a bad enough situation
that in March Wal-Mart withdrew from a $7.5 billion settlement to continue its
own lawsuit against Visa et al: [http://www.bloomberg.com/news/2014-03-27/wal-
mart-sues-visa-...](http://www.bloomberg.com/news/2014-03-27/wal-mart-sues-
visa-claiming-card-transaction-fee-fixing.html)

I found a few other articles that support the guess that the big retailers are
in the middle of an all-out war with their credit card processors (e.g.
[http://www.csmonitor.com/Business/new-
economy/2011/0413/Cred...](http://www.csmonitor.com/Business/new-
economy/2011/0413/Credit-card-swipe-fees-US-firms-pay-too-much-and-it-hurts-
consumers), [http://www.forbes.com/sites/danielfisher/2012/07/24/wal-
mart...](http://www.forbes.com/sites/danielfisher/2012/07/24/wal-marts-swipe-
fees-are-a-political-weapon-against-visa/)), so now CurrentC and the rejection
of Apple Pay makes a little more sense. I didn't get it before.

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transpy
That website... where is the volume control? And if I want to re-watch the
clip, I have to re-watch the damn 25 second long commercial! And I have to
sign up in order to comment. Horrible website.

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wilde
I think I'm missing something. How does Apple Pay have enough info to generate
the larger payload they're looking for if you add cards by typing in the
number?

~~~
prostoalex
[http://www.zdnet.com/apple-pay-and-security-could-
tokenizati...](http://www.zdnet.com/apple-pay-and-security-could-tokenization-
be-the-tool-that-curbs-data-breaches-7000033585/)

[Apple Pay] "Tokenization removes the actual credit card number and replaces
it with a randomly generated number. That number, or token, can be configured
to expire after one purchase or made specific to a certain transaction, making
it a useless target for hackers or fraudsters.

But what's more, tokenization removes a huge storage burden from merchants,
since they never see a person's actual credit card information and it never
enters their POS system or online payment portal.

Now, Apple didn't invent tokenization. But by taking the tokenization route,
the Cupertino powerhouse could be looking to ride the security wave all the
way to payment success, especially considering the rising number of merchant
data breaches and instances of stolen credit card information that continue to
hit the payment and retail industries."

~~~
fpgeek
> But what's more, tokenization removes a huge storage burden from merchants,
> since they never see a person's actual credit card information and it never
> enters their POS system or online payment portal.

Yes, merchants think that getting additional customer-identifying information
that forces them to run extra analyses on the mountains of transaction data
they warehouse is a huge burden they'd like to be relieved of.

</sarcasm>

~~~
prostoalex
Don't most of them use loyalty cards for that purpose anyways?

Target's data
[http://www.usatoday.com/story/money/business/2014/03/11/targ...](http://www.usatoday.com/story/money/business/2014/03/11/target-
customer-traffic/6262059/) showed showed that customer visits, sales and
profits decreased significantly following the breach. They would probably be
happy to offload that nightmare onto somebody else.

~~~
fpgeek
As I understand it, retailers use loyalty cards to improve their customer-
level data and as a way to act on that data (e.g. targeted coupons), but even
the baseline they can extract without loyalty cards is very important to them.

In fact, even after last year's breach, Target clearly isn't happy offloading
that nightmare. They're currently teting CurrentC:
[http://www.dispatch.com/content/stories/business/2014/11/10/...](http://www.dispatch.com/content/stories/business/2014/11/10/target-
testing-its-own-mobile-app-hopeful-that-it-can-rival-apple-pay.html)

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amelius
Sigh, why do we even allow a company to build quasi monopolies like this?

~~~
wfjackson
Not sure if you're referring to Walmart or VISA/MasterCard.

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acex
an article from recode.net - really? a fox news of tech.

