What If...?

by Paul F. P. Coenen

   Remember how we approached marketing in our last article? The concept was to try to determine what would happen if a seemingly unlikely event took place; a chance to sit back and say, "What if..."
   Naturally, events like Mount St. Helens and Krakatoa, 9/11 and Pearl Harbor, the San Francisco and New Madrid earthquakes and the rises of Hitler, Stalin, Mao, Idi Amin, Pol Pot and Milosevic say that everything is possible. And, if life is a series of Poisson probabilities (EMJ = See directly below), it makes sense that the longer something has not happened, the more likely it is that it will happen.
   In these articles, you will sometimes see the letters: EMJ. They are short for Esoteric Mumbo Jumbo. When you see EMJ, think 'hocus-pocus', but the concept usually has a basis in fact and takes a long time to explain.
   Enough lead-in, how about the lead? What if there were a major communications failure? Not just a little outage or even a major brown or black out, what if there were a major communications failure that lasted weeks or months?
   Maybe you should take just a moment or two to imagine this concept. To get this to happen, you may need some help. Something like the fabled 'big one' that makes places like San Bernardino, Fresno and Sacramento oceanfront properties. Or maybe a passing and troubled B-52 drops several surprises or Osama's pals cause a nuclear air burst or two followed by the EMJ-like EMP (Electro-Magnetic Pulse)? Or maybe a repeat of the 1908 Siberian Tunguska blast occurs?
   You may say that some of these events already happened in the past 100 years. Yes, I know. The four H-bombs dropped off Palomares, Spain, and those two off the U.S. Atlantic coast didn't explode and Osama's still at large, but...
   Maybe we just fill our EMJ conjuring pipes and say that because we cannot measure the problem accurately, one doesn't exist. Ah, yes, but there would be a problem. Since much ISO work is directly related to communications, whether authorizations, transaction completions, or settlement, lack of communications does create a problem. Again, we mean a genuine, long-term communications failure!
   From a quick review of the contracts of some ISO friends, the potential problems are not addressed. The question to the ISOs was: "What does your contract say about communications and authorizations and settlement?" The answer most often was: "This area is absolutely not addressed. The closest it comes is to say they (the Processors) are not responsible for anything outside of gross negligence. Some contracts may not even mention what services are provided by a Processor, with the exception of Schedule A � Pricing."
   Naturally, only a "few, thoughtless" ISOs would pass along a potential, but undefined problem, to merchants. But, if a merchant continues to honor cards, without authorizations, but in good faith, during a communications failure, what then?
   It may be way too easy to say, "Tough luck, merchant!" If the merchant did not comply with all the rules of authorization, the transaction is automatically subject to a 'salt and pepper' coating and having the merchant eat it.
   But, what if something serious has happened and the merchant is supplying a critical need, then what? As more and more people become dependent on cards and electronic money, the question gets more and more relevant. Some kind of agreement among the parties of bank card acceptance is required.
   And, perhaps, this is the only real/economic solution to the problem. The credit card Associations must come up with an "off-line policy" to protect the merchants and allow use by consumers. Even if we look at the coming EMV cards as one attempt to handle the inevitable, it must be done.
   I suggest a forum among all the participants in credit cards: All Associations, Issuers, Acquirers, ISOs, merchants and consumers. With or without EMV, communications loss will still be an issue and should be addressed.
   For our purposes, we've only talked about a communications failure. If that failure included a failure in the electrical system, look out! When you have some extra time, consider what a long term interruption of some part of our electrical system infrastructure could mean.
   Let's say there is a major communications problem. Easy, you simply switch to another communications method. Instead of a land line, the Internet is available? You could work off your cell phone, right? How about a voice over data or Wi-Fi or having your own network?
   Well, yes, but these alternatives may be too costly for the average ISO and merchant. Maybe, if you're big like Macy's or Target, you can afford a hot back-up communications plan. But, at least you should talk about what alternatives you do have and what you will do until communications are restored.
   What if the communications failure is localized or targeted on just a bankcard center(s) and the center(s) went down for a long time? Well, as Gomer said, "Surprise! Surprise! Surprise!"
   While the centers are generally very reliable, they have gone down in the past. But, they're redundant and something unusual must happen to get several of them to go down and stay down for the length of time we're talking.
   However, the name of this column is "What if..." Maybe you just want to cover this sort of event in your contracts or find out from your Processor what will happen. What would you and your customers and consumers do?
   Who does have what liability if you try to be a good person and honor cards during a disaster? As a merchant, you might think of yourself as opening a big charge account for any card customer who walks in and shows you a card.
   Does this communications failure event fall under the "Acts of God" or the "Force Majeure" part of your contract? In most cases, it's not specifically mentioned, but will send several sons and daughters of lawyers to Notre Dame when it occurs.
   The forum previously suggested makes a lot of sense!
   If you have a "What if..." type question, please feel free to send it to me. I'll try to fit your questions into these articles and give you a thoughtful and innovative answer.
   Let's just say there are three guidelines:

  • Answers must be limited to the size of this column. That's a nice way of saying that questions that have long and detailed answers are probably not subjects that can be addressed;
  • No questions like "How high is up?" can be fully and correctly answered without significant artificial assistance, lie lots of beer or EMJ. Always remember, the world cannot end today, because it's already tomorrow in Australia; and
  • This column, as good as it may get, cannot replace a full study and analysis. Again, a nice way of saying I probably can't solve a specific problem without seeing and knowing all of the details.