May 9, 2006

Central Banker promotes EMV to cut fraud ... and reduce interchange

The announcement by banks to cut credit card interchange by 25% in Mexico, and debit card interchange by 70%, got me to look closer at other payment related things that Mexico's Central Bank is concerned about. I ran into this interesting bit of insight.

Central Bank Governor Guillermo Ortiz commented on chip technology at a conference last year. He applauded its ability to reduce fraud ... and saw this as a further reason to reduce interchange fees.

"In order to enhance the use of more efficient systems," he said, "the Bank of Mexico made the honor-all-cards rule more flexible to allow the possibility of merchants accepting only debit cards. We are also promoting very, very keenly the adoption of chip technology, to hamper fraud and, thus, further reduce interchange fees."

Banks are squeezed. They invest in EMV chip technology to reduce fraud, then risk getting hit by central bankers that see this as yet another reason to cut interchange. Banks that look at chip technology simply as a way to reduce fraud are heading straight into faster commoditization, as Mr. Ortiz's comments make clear.

On the positive side, he also sees chip technology as key to substantial growth in card payments: "The adoption of this chip technology, together with the effort of the treasury to have most of the transactions done by cards, is our goal for a potentially very large development, particularly of debit cards."

No comments: