After more than a year adapting to the COVID-19 pandemic, multiple vaccines are now in circulation and millions of Americans are being inoculated daily. States and localities have begun curtailing restrictions on businesses, and the American public is starting to return to some semblance of the way things used to be. While a return to normal is on the horizon, there are some aspects of pandemic life, such as the increase in use of electronic payments, that are here to stay.
When COVID-19 first hit, the use of contactless and electronic payment methods skyrocketed. This was largely due to consumers preferring to utilize e-commerce and shop from home whenever possible, because the exchange of cash requires close contact, and a trip to the store meant potentially increasing the risk of transmitting the virus. The electronic payments system was a lifeline to millions of small businesses that kept their doors open as hundreds of thousands shuttered, by allowing them to adapt to the current environment by pivoting to online sales, curbside pick-up, and contactless in-store checkout.
For years, the payments industry has been preparing for this shift to contactless by investing in innovative technologies, such as Secure Remote Commerce, tokenization, fingerprint identification, EMV technology, 3D Secure, and AI. With the global shift to contactless payments, these investments in security technology are more important now than ever. In order to combat fraudsters and protect the personal and financial information of consumers and small businesses, incorporating advanced technologies has particular benefits. Specifically, they enable small businesses to offer the same secure checkout experience to consumers as big box retailers, while at the same time, relieving small businesses from fraud liability, PCI compliance, and “false declines” where a valid sale is declined because of limits in older security systems.
While these technologies have thwarted countless cyber breaches around the globe, more investment is necessary to continue innovating as fraudsters become more sophisticated, and the volume of contactless payments around the world continues to climb. Research by Cybersecurity Ventures, estimated that cyber-attack incidents would occur every eleven seconds in 2021, nearly twice the rate in 2019. This only emphasizes the need for the payments industry to continue its investment into innovative technology.
It is unfortunate, then, to see recent efforts by policymakers backed by big-box retailers to limit investment into the electronic payments industry, and in turn the technology that protects both consumers and small businesses, through the expansion of Dodd-Frank era price controls. For years, these global chains have insisted that these price caps benefit consumers with cheaper prices in stores. However, a 2017 report published by the International Center for Law and Economics detailed how price controls on debit card fees resulted in big box retailers saving approximately $40 billion. Furthermore, this cap has resulted in a massive transfer of income from consumers to retailers. In fact, according to a recently-conducted analysis using data from the Federal Reserve, since 2012, issuers have lost more than $90 billion in interchange revenue — including an estimated $14 billion in 2019 alone.
Home Depot, Target, Amazon, Costco, and Walmart are among the many big box retailers urging lawmakers to artificially reduce their cost of accepting the very electronic payments that have made online commerce possible. Big box retailers have engaged in a “never let a pandemic go to waste” approach, weaponizing the COVID-19 business environment in an attempt to use government power to limit their costs of doing business.
While small businesses have been decimated by COVID-19, these big-box retailers have continued to grow and prosper—collectively profiting $66.2 billion this past year and maintaining a combined market cap of over $3.5 trillion. Unlike small businesses, these retail titans were allowed to stay open during the early months of the pandemic, resulting in a $250 billion wealth transfer into their coffers.
There is no question that COVID-19 has permanently changed the way people pay. As we continue to transition to a more contactless world, it’s urgent that lawmakers reject efforts that would limit investment into the innovative technology that makes such a world possible. To ensure that small businesses and consumers are protected, we must continue to support the critical investment that is required to ensure the innovation of future technology that enhances the security of the electronic payments system.
