Sometimes unintended consequences can be good—except when they are bad of course—and that depends on which part of the payments world you live in. During the recent Retail Payments Conference, Walmart was one of the fee retailers in the proverbial lion’s den, and most certainly made their feelings known.

Turns out that one of the unintended consequences of the Durbin Amendment—which will constrain the amount of interchange banks can charge merchants when a customer uses their debit card—could lead to the widespread adoption of whole new technologies for making payments.

At the conference, Walmart was vehemently pushing for the adoption of EMV payment technology.

Wikipedia describes EMV as follows:
EMV stands for Europay, MasterCard and VISA, a global standard for inter-operation of integrated circuit cards (IC cards or “chip cards”) and IC card capable point of sale (POS) terminals and automated teller machines (ATMs), for authenticating credit and debit card transactions.

It is a joint effort between Europay, MasterCard and Visa to ensure security and global interoperability so that Visa and MasterCard cards can continue to be accepted everywhere. Europay International SA was absorbed into MasterCard in 2002. JCB (formerly Japan Credit Bureau) joined the organization in December 2004, and American Express joined in February 2009. IC card systems based on EMV are being phased in across the world, under names such as “IC Credit” and “Chip and PIN”.

A likely scenario is that the reduction in interchange fees brought about by the Durbin Amendment could lead to wide spread adoption of EMV in the U.S. As you might expect, Walmart is leading the way, by upgrading all of its stores to use EMV by the end of 2011—Durbin Amendment or not.

There are two advantages to the consumer in using the new technology (actually three—lower interchange fees being one—but that will be mandated by Durbin). Those two remaining advantages are better global acceptance, and better fraud protection. The theory is that the better fraud protection will lower the overall cost of the transaction, and that will ultimately make profitability possible despite lower interchange fees, i.e. it will cancel out the profit-dampening effects of the Durbin Amendment.

The bottom line is that Durbin will have a ripple effect throughout the industry in a lot of different ways, most of which may be difficult to foresee.

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