By Joseph Naujokas

The economic relationship between retailers and credit cards' successful growth has been nothing less than phenomenal. I doubt that either would be successful without the other. Card manufacturers are also dependent on the success of both parties, so we are concerned as well. I would like to reflect briefly on some historical factors and look towards the future.

In spite of their co-dependency, over the years I think the retailers have been taken for granted by the Card Associations and not considered to be equal partners. This was evidenced by the VISA Electron Card released in the mid-1980's. It turned into a flop because the retailers weren't willing to invest in the software required to accept a card that they thought had limited potential. Even their system suppliers were reluctant to invest R&D resources to provide the required systems components to support the card.

VISA was so confident that the retailers would just say "Yes!" that they took embossing off the card. Without embossing, the card was virtually useless due to the lack of support for the Electron Card at the POS.

After the Electron Card incident, VISA initiated the "accept all or none VISA products" policy.

They then moved forward with the Check Card, a great idea, but the pricing was unfavorable to the retailers - but now, unlike the Electron Card, the retailers had little choice but to accept it.

If the Check Card cardholder enters a PIN, the cardholder pays a fee. If the cardholder elects to use a signature, there is no charge to the cardholder. However, both options result in the same effect, as a debit on their checking account. The retailers transaction cost is in the reverse of the cardholder cost.

Most retailers already had good control of both costs, check acceptance and check processing. The costs were most likely at a lower cost than the VISA-MC fee. They really didn't need the check card product. Feeling gouged and abused, the retailers initiated the law suit against VISA and MasterCard. The recent settlement by MasterCard for 1 billion dollars to the US retailers, followed by the 2 billion dollar settlement by VISA will have a telling effect on our industry.

Technology and the credit card have enabled the retail industry to grow at a rapid rate. Indeed the first payment technology started with the mechanical cash register. Prior to that, retailing was basically a one store family business. Multiple or large stores with many non-family employees was risky because of the tremendous theft opportunity. The cash register provided the first means of cash security and control. The well known "Kacheeng!" was part of the cash register function to alert the store owner/manager that the cash drawer was open. It was no accident that stores such as Sears and JCPenney celebrated their hundred year's anniversary a few years after National Cash Register celebrated its 100th anniversary.

Like the Cash Register, the credit card has been a major positive factor in the growth of the retail industry. Likewise, retailers have been a major positive factor in the growth of the credit card industry. So the suit/ settlement is an unfortunate incident between the dependent partners. However, a hopeful result is that the credit card industry will never again take the retailers for granted.

What does this mean for the immediate future?
The most immediate effect is that VISA and MasterCard will have to cut back somewhere to pay for the cost of the settlement and the loss of revenue. Since the settlement will put a damper on any significant price increases for the near future, they will probably have to cut costs drastically. I would expect that this means new product development will be curtailed and services cut back. Participation in standards is already on the wane.

Will history repeat itself?
The card associations must give retailers careful consideration as they move forward with mandatory smart card implementation. They should carefully consider any strategy that forces the retailers to invest in changes to their POS operations without any of the benefits going to the retailers. Smart Cards must be another technology that benefits both the retailers and the credit card industry and at the same time be a benefit to their mutual customer, the cardholder.