Does Visa want to stunt the growth of the white label Digital Wallet?
I admit that, towards the end of last year, I may have taken my eye off the ball, so to speak. A small piece of news slipped by me (and quite a few others) completely. It was a 15th December Visa Business News Piece, titled, ‘New Digital Wallet Definitions and Rules introduced for Europe Region’. The new rules came into effect last Saturday (21st January) but so far, no-one appears to have reported on the changes apart from eagle-eyed individuals on the ‘Innovations in Payment’ thread in LinkedIn.
Visa says it will “introduce new definitions and update its rules in response to the growing interest in digital wallets and the potential risks they bring to the payments system. New requirements will also address the processing of transactions completed with a staged digital wallet and the responsibilities of a staged digital wallet operator (SDWO) and its acquirer.”
“The use of digital wallets continues to grow. While there are many benefits to digital wallets (such as cardholder convenience, growth in mobile contactless and enhanced security through tokenization), some models introduce risk and may confuse customers. To manage those risks, effective 21 January 2017, Visa will introduce new definitions and rules to clarify requirements for entities that act as digital wallet operators (DWOs), and to promote efficient transaction processing when a digital wallet is used. “
Visa defined two types of digital wallets and their features:
First is the ‘Pass-through Digital Wallet’ that can be used at multiple merchants and stores a credential (account or token) supplied by the cardholder to the DWO. This wallet also completes a transaction by transferring the stored credential to the merchant without interrupting the flow of funds.
Second is the ‘Staged Digital Wallet’ that can be used at multiple retailers and uses a Visa account number supplied by the cardholder to the SDWO. This wallet uses a separate account or accounts assigned by the SDWO to the cardholder and completes a transaction (via an SDWO) in more than one stage, in any order, such as paying the retailer using the account assigned by the SDWO (Purchase Transaction) and uses the Visa account number provided by the cardholder to fund or reimburse the staged digital wallet (Funding). The operator of the Staged Digital wallet deposits the transaction for the funding amount with its acquirer using the Visa account number supplied by the cardholder.
Visa say that “..entities that store an account or a token are only wallets if they meet the criteria set out in these definitions. For example, a merchant that stores a Visa account for use only at its own outlets is not a DWO.”
There are new requirements by Visa for these wallets; written agreement by cardholder in the use of their account in the wallet and must not perform Visa payment services for another DWO. This is fairly straightforward, but Visa see risks with the Staged digital wallet. In their words, “…the merchant has no knowledge of the card brand used to initiate the transaction, there is a significant risk that the transaction data will be incomplete, and the model can be used to circumvent Visa’s purchasing rules. Accordingly, Visa will introduce new rules to reduce associated risks.“
The main requirement for SDWO acquirers being that they must “Be in good standing with all applicable Visa risk management programs, and meet a minimum capitalization requirement of US $100 million (or US $500 million if the SDWO’s annual transaction volume exceeds US $50 million). For the SDWO themselves they must “ensure cardholder consent is obtained for use of the staged digital wallet as a payment method. There must be no contract with a PF or another SDWO to process its transactions or purchases. no assigning of the cardholder an account issued by a non-Visa, general-purpose payment network or a Visa account (i.e., the SDWO must not use a general-purpose card to facilitate purchases with the retailer). Finally, only contracts with an acquirer located in the same country and only allow a Visa card to be used if the retailer that sells the goods or services is also in the same country.
You can read the full notice by following this link.
Commentators have pointed out that such actions by Visa could be an attempt to reign in fraud, while others have pointed to possible growth curtailment strategies by by Visa and by extension, possibly Mastercard. Either way, it was an interesting development that was way under-reported. You can read all of the comments by following this thread.
The war of the wallets, it would seem, is far from over.
Steve Atkins
Contactless Intelligence
