The Mobile Payment Conundrums: To Chip, To Store, To Bank?

The payment strategy struggles for Mobile-Commerce continue, with retail IT execs seeing the phone as a future "Get Out Of Interchange Jail Free" card in an elaborate game of Card Brand Payment Monopoly. Some see future secure chip-integrated phones as the answer, a way that moves payments away from Visa and MasterCard and permits a secure way to tap directly into a consumer's bank account.

But retailers pursuing such a strategy might quickly discover that, with payment, when one door closes another opens—and it's likely a trapdoor beneath your feet. For example, a secure route to bank accounts may indeed sidestep most—if not all—card fees for those mobile transactions. But it would also remove the liability shield that the brands' zero-liability programs offer.

That's potentially huge. Zero-liability programs are what have made massive data breaches at TJX and Hannaford—along with their less-publicized co-victims, including 7-Eleven, BJ’s Wholesale Club, Boston Market, Sports Authority, Dave & Buster’s, Target, J.C. Penney, Office Max, Barnes & Noble, Sports Authority, Forever 21 and DSW—impressively survivable; mainly because consumers suffered virtually no losses. That made customer abandonment non-existent, which preserved revenue and kept Wall Street happy. And in the absence of losses, class-action lawsuits against those retailers go virtually nowhere.

But if a major data breach hit a retailer and it allowed direct access to its customers' bank accounts, a radically different result would be likely. The worst-case scenario is that customer bank accounts could be wiped out, with a mildly better case scenario being that their balances are only drained enough to bounce a bunch of checks. The prospect of losing an overwhelming majority of those customers is quite real. And then everything else dominos through, starting with plunging revenue as other consumers stay away and followed by a frowning stock market and class-action lawsuits that have a much better chance of being successful.

Still, interchange fee avoidance is tempting. Typical mobile purchases are likely to fall under the highest rate of card not present. But so many factors are unknown. What if the mobile purchase is consummated in-store? Will that make a rate difference? What if consumers buy—or are given by a retail chain—their own card swipes? What if banks approve those personal card swipes? Will that make phone purchases immune from CNP charges?

Phones that ship with payment chips embedded are still several years away—one Fortune 500 retail CIO said last week that his team is projecting three to five years away—and so much in payment and security can change in that time.

But Visa, MasterCard, American Express and the others have a lot at stake here, and it's unlikely they'd surrender interchange without a huge fight. Even if you assume a very robust M-Commerce market five years from now—a truly viable assumption—there is still likely to be a huge (and most likely still dominant) in-store and E-Commerce space. That's a pretty big bat for the card brands to use to pressure retailers to not push too hard on mobile.

Even worse, the telecom carriers and the phone hardware manufacturers are going to be pushing for lots of ways to make their money, too. It's not out of the question that retailers could face the wrath of banks and brands but still manage to get out of mobile interchange costs, only to discover that the card payments were simply replaced with carrier payments. Would a chain rather be at the mercy of the humanitarians at AT&T or Visa? Now there's a choice that's just ripe for a week of sweat-soaked nightmares.