--Visa executive says company has no plans to charge a fee to
digital-wallet providers
--MasterCard fee has raised speculation that other payment
networks would charge a fee to digital-wallet providers
--Payment networks say transaction data limited when consumers
use certain digital wallets
By Andrew R. Johnson
The rise of digital wallets that allow consumers to make
purchases online and in stores with mobile devices is leading to a
new battle among payment networks, banks and technology firms over
lucrative transaction data.
Incumbent players like Visa Inc. (V), MasterCard Inc. (MA) and
American Express Co. (AXP) fear their access to details that they
and their bank partners receive when a consumer swipes a credit or
debit card is being stymied by some of the digital applications,
which can store account information.
Information such as merchant identities is used by banks to
monitor fraud and update customers' loyalty programs. That
information is especially important as financial-services firms
look to generate revenue through merchant offers based on where
customers like to shop, experts say.
"If they don't know where the sale was made and to which
merchant, they cannot command those premium...rates," said Richard
Crone, chief executive of Crone Consulting LLC, which advises banks
and merchants on payments issues.
A move by MasterCard to assess a fee on certain digital-wallet
providers starting this summer has highlighted the high stakes that
incumbent players and emerging competitors like Google Inc. (GOOG)
and Square Inc. are placing on digital commerce.
News of the fee had weighed on shares of eBay Inc. (EBAY), which
owns the PayPal payments service, in recent days, with some
analysts predicting Visa will follow suit.
Visa Chief Executive Charles Scharf fueled that speculation
Wednesday, saying it was "totally appropriate" for Visa to rethink
pricing.
"We are always thinking about those relationships and they've
changed and if they change enough that we think it warrants us to
change something...we'll do that," Mr. Scharf said during a
presentation at an investor conference.
However, Visa's global head of product Jim McCarthy told Dow
Jones Newswires before Mr. Scharf's remarks that the company has no
plans to introduce a fee. In an interview last week, Mr. McCarthy
said, "Right now it's not planned."
"We're really looking at what I consider to be a longer-term
solution that...cleans up some of the confusion," he said.
A Visa spokeswoman reconfirmed Thursday that the company doesn't
plan to charge a fee at this time.
Discover Financial Services (DFS) executive Diane Offereins said
during an interview with Fox Business Thursday that the company
doesn't plan to charge a fee at this time. "Our objective is to
partner with PayPal, not to tax them," Ms. Offereins said.
An American Express spokesman said the company is considering
its options regarding possible fees but had no specific information
to disclose at this time.
MasterCard's fee, part of a broader program that will require
digital-wallet providers to register with the payments network in
an effort to collect more information, will be charged annually and
be based on the provider's prior-year volume, Sanjay Sakhrani, an
analyst with KBW, wrote in a research note last week.
The fee will affect wallet operators that conduct transactions
in stages, "which is a two-step process where a transaction
requested by the merchant is then matched with a payment requested
by the consumer," Mr. Sakhrani wrote. In these scenarios, the
wallet provider, such as PayPal, "acts as the merchant of record
and does not disclose specific merchant level information to the
network or card issuer."
Digital wallets allow consumers to register their existing card
accounts in a program that can be used to make purchases on
websites and in physical retail locations. Many of the programs are
accessible on mobile phones and tablet computers. Instead of
pulling out a physical card to make a purchase, a user can open the
app and select one of the stored card accounts for a
transaction.
In addition to companies like eBay and Google, traditional
players like Visa and MasterCard also are pushing their own wallet
services, as are banks that issue cards to consumers.
"Banks have a clear interest in preserving their direct
relationship with...whom they deem or view as their customers
because it enables them to drive [spending] and engagement with
incentive rewards," said Denee Carrington, a senior analyst with
Forrester Research Inc. But some of the services "are kind of
sitting between the bank-card issuers and their customers. You're
not necessarily reaching for your card. You're deciding which
digital wallet to use."
To address such concerns over access to data, Visa is "creating
a new lane" for digital-wallet providers that will allow companies
to offer their technology in a way "that doesn't create what we
consider to be real consumer confusion issues...and payment risk
issues," Mr. McCarthy said.
The program would more closely link third-party digital wallets
to the underlying funding sources a consumer is using in those
programs. "This provides the same amount of data, or more, ensures
transaction integrity and transparency, and will drive benefits to
all parties in a transaction," Mr. McCarthy said.
PayPal, best known for its service allowing consumers to buy
goods from online merchants, has lately been pushing into the
physical world, equipping merchants to accept its service alongside
cards of Visa, MasterCard, American Express and Discover Financial
Services (DFS).
Mr. Scharf, Visa's CEO, noted that some of its competitors have
changed course recently.
"Some of the people we compete with started out as one thing and
they morphed into another thing," he said. "Doing things online is
very different than doing things at point of sale, and allowing
data to be passed through our issuers and then not allowing data to
be passed through our issuers makes us rethink...our pricing and
our rules."
As with online purchases, customers can fund in-store PayPal
transactions using their existing credit cards, debit cards and
bank accounts.
"PayPal has a great relationship with the card networks and we
are in fact one of their largest customers," a spokesman for the
company said in a statement Thursday. "We continue to work closely
with both Visa and Mastercard as the market evolves and technology
changes how consumers shop."
The spokesman also said PayPal provides transaction data to card
networks in compliance with agreements it has with the
companies.
MasterCard's program will require digital-wallet providers to
register with the company and include an identifier code in some
cases with their transactions, according to Ed McLaughlin, chief
emerging payments officer for the Purchase, N.Y.-based company.
"It's a way of reducing unintended issues in the system," Mr.
McLaughlin said in an interview. "We're also making sure that
things like payment card credentials are being handled
appropriately by all these new entities that are storing them."
American Express last year criticized Google's wallet app over
what it said were concerns over how its customers information may
be used. It said it could turn off its customers' ability to enroll
their American Exress cards in Google Wallet at any time, though
the company ultimately hasn't taken that step, a spokesman
said.
"Unless we get this right, customers will be confused and we
cannot allow that to happen," Kenneth Chenault, chairman and CEO of
American Express, said during an investor presentation in August
around the time Google made changes to its service. "It will cause
customer service issues."
A spokesman for Google declined to comment on Wednesday.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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