By: Hannah Walker, Vice President, Political Affairs, FMI
Let’s start with a quick story. When it became evident that we were headed for a nationwide directive to stay at home, I headed home to West Tennessee to be with my mother and sisters. During my time back in The Volunteer State, I introduced my 72-year-old mother, affectionately called “Foxy,” to online grocery shopping. Sure, Foxy has ordered clothes, toothpaste, garden tools and even paper towels online, but groceries?
We found two solutions that would work for her. First option, her local grocer offers contactless click and collect. Second option, we found a third-party service provider who will fulfill and deliver her order. Between these two solutions, Foxy is hooked!
My story is not unique. Millions of Americans are trying online grocery shopping for the first time and will continue to use it even after the stay-at-home orders have been lifted. According to our U.S. Grocery Shopper Trends COVID-19 Tracker data, 21% of Americans started online grocery shopping during this pandemic. While these methods are great conveniences and essential services for shoppers during this time, both click and collect, and home delivery pose unique challenges for grocers.
The major credit and debit card brands established the rules of the road retailers must adhere to in order to process online or “card not present” (CNP) transactions. The card brands treat CNP transactions much differently from when the card is presented in store. Here’s how:
They charge retailers a higher fee to process CNP transactions than in store. For instance, a debit transaction can be up to 150% higher online than in store.
Additionally, the card brands place much of the liability for CNP fraud on the retailer. This creates a double whammy for retailers who now have more expensive transactions and a higher risk of fraud liability when they offer online sales to their customers.
Retailers are often blocked from choosing alternative networks to run their debit transactions through online versus in store. Our friends at CMSPI, a retail consulting group, shared that U. S. merchants would save more than $600 million per annum if access to debit routing was more prevalent online. They also shared this number will only increase as online shopping grows.
This pain is compounded by the fact that the card brands refuse to allow retailers, or any other stakeholder, to take part in the standard-setting process to help make these transactions more secure.
While these policies may have made sense in the early days of the internet and online sales, today these rules are simply unfair and must be corrected.
Retailers Need a Seat at the Table
The U.S. grocery industry is investing significant capital in order to offer online sales and remote card acceptance. They invest in these services in response to consumer demand, and at this point in history, consumer need. It is time for the card brands to reassess their CNP rules and rates, so the policies better reflect the ever-evolving marketplace and allow retailers a seat at the table when security standards are established.
We also need the Federal Trade Commission and the Federal Reserve to step in and enforce the federal law that gives retailers the right to route debit transactions through competitive networks not just in-store, but online.
America is the land of innovation; we use technology in ways that were not even conceivable 30 years ago. These innovations also bring added efficiencies and reduction of costs for all parties. Unfortunately, we are seeing the opposite in the online card processing space. Antiquated rules and fee structures make it more expensive and riskier for a grocer to offer online sales. We need the card brands to step up, work with us and reduce the costs and barriers, not increase them. The U.S. consumer deserves this as does the grocery industry and its nearly 6 million employees.
Now, please excuse me, Foxy and I have another grocery order to place!