MasterCard on Wednesday (Nov. 11) globalized its zero liability policy, in effect delivering the kind of consistent worldwide shopper protection that Visa can not yet offer. But it will take MasterCard—which has been working on the policy change for a year—until as late as June 30, 2016, to support all regions, giving Visa time to react.
This competitive differentiator is because MasterCard is one global organization, whereas Visa’s country operations are separated, a move that Visa last week started to address with its proposed reunification of Visa and Visa Europe.
The MasterCard move also extended protections to small businesses and theoretically made it a lot easier for global PFs to function beyond the U.S. borders.
The move was seen as strongly favorable to MasterCard, given that making shoppers comfortable with using the brand is essential. There is the potential for small increases in fraud costs to MasterCard issuers, but the advantages are expected to far outweigh those costs.
Those costs will be “marginal in terms of its financial impact to” MasterCard issuers, said Nancy O’Malley, chief payment system integrity officer, Enterprise Security Solutions at MasterCard.
O’Malley stressed that when the card brand approached its issuers before finalizing the rule changes, “they told us ‘We don’t think it’s going to increase our risk in any way, shape or form'” and that was because “in the area of liability for fraudulent transactions, some were already extending this protection. There’s no question that (some issuers) were driving in this direction anyway as a matter of customer service and competition.”
Aite Group Research Director Julie Conroy agreed, saying that the competitive risk—where Visa would pitch MasterCard issuers to do more Visa business because it would have lower reimbursement costs—is negligible because such a move by Visa “would have significant PR ramifications. I don’t think there’s a lot of risk to MasterCard.”
Overall, Conroy said, this is a very smart move by MasterCard—especially in how it takes advantage of Visa’s current structure, which limits Visa’s global flexibility. (Visa did not respond to a request for comment.)
“MasterCard has definitely kind of scooped Visa on this one,” Conroy said. “They took the leadership role here.” She added that she expects to try and match MasterCard’s program, but it may choose to wait until it completes its European consolidation. “Visa is going to have to talk with all of its issuers. Are they going to wait until they are one global organization? If I were in Visa’s shoes, I wouldn’t wait. I would move forward.”
Conroy said the problem this MasterCard move is trying to address are scores of inconsistent payment fraud across many regions. “I tried to decipher the global patchwork when we there (in Europe) last year. I couldn’t even get the lists out of the networks themselves because it was such a confusing mess,” she said. “The patchworks are being dictated by the local customs and laws. MasterCard is going above and beyond the bare minimums required local laws. MasterCard has cut through all of that.”
MasterCard’s O’Malley said those inconsistencies meant the card represented different levels of fraud protection in different areas. “We had a different rule in each MasterCard region across the globe,” O’Malley said, adding that the one exception was Latin America where they were no MasterCard fraud reimbursement rules. “We felt that we need to elevate the protection offered to our consumers,” she said.
O’Malley said that one reasons local rules have been so inconsistent is that “competition has been the primary driver for what local practices were.”
MasterCard’s official statement said that this policy change will protection transactions “including PIN-based transactions at the point of sale, ATM withdrawals and online or mobile transactions on MasterCard, Maestro and Cirrus-branded transactions” as well as “transactions made using a consumer credit, debit, small business or prepaid cards registered to a consumer, as well as co-badged cards provided MasterCard is the brand of choice at time of purchase.”
As for timing, the card brand statement said: “In Oct. 2014, MasterCard cardholders in the U.S., were the first to benefit from the updated rule. It will be extended to all regions by early second quarter 2016.”