Being the 800 lb. gorilla in any industry has its challenges as well as its blessings. Take VISA: one sure-fire way to get any group of retailers riled up is to have a conversation about the giant payment network company. Whether its fair or not, the San Mateo company is closely identified with the implementation of Payment Card Industry ( “PCI “) standards. While its important to remember that PCI is an industry-wide standard, VISA wielded the biggest “hammer ” to ensure compliance.

And so it was that at this year’s IBM Retail User Group meeting (May 21-23) in Las Vegas, one of the panel discussions that caused the most grumbling was about the rollout of EMV payment cards in the USA. “EMV ” stands for “Europay, Mastercard, and VISA “, and it’s the common term for “chip & pin ” credit and debit cards used throughout most of the world. Now there is a timeline for implementation here in the U.S. Last August, VISA announced plans to accelerate the migration of “contact and contactless chip technology in the United States. ” The announcement covered both EMV “chip ” cards and NFC “contactless ” payment authorization with smart phones.

In its announcement, the “carrot ” that VISA offered a PCI-weary retail industry is this: “Effective October 1, 2012, Visa will expand its Technology Innovation Program (TIP) to the U.S. TIP will eliminate the requirement for eligible merchants to annually validate their compliance with the PCI Data Security Standard for any year in which at least 75 percent of the merchant’s Visa transactions originate from chip-enabled terminals. “

The truth of the matter is that EMV should have been adopted in the U.S. a few years ago, when retailers were being forced by PCI compliance deadlines to update their payment terminals at the registers anyway. Some retailers saw it coming; for example, NYC drugstore chain Duane Reade (now a subsidiary of Walgreens) implemented readers that could handle all manner of contact and contactless chip-based payment presentations. Of course, New York City is an international shopping mecca, and since shoppers from other parts of the world use EMV cards, the retailer was following the old adage of never letting technology (or lack of it) prevent you from taking money from a customer when it is offered. But for the many other U.S. retailers who waited, there is an upside: even by the beginning of 2010, it was unclear how pervasive smart phone adoption would be. Now it’s certain that virtually everyone who has a mobile phone has a “smart ” one that either now has or soon will have NFC ( “near field communications “) built into it. That is why the VISA announcement covered not only EMV cards, but also NFC-based payment authorizations.

So the day of the digital wallet has truly come. The grumbling at the Retail User Group Conference was more about VISA and their penchant for deadline-driven “incentives “. The conference organizers attempted to diffuse some of the negativity by including representatives from Mastercard, Ingenico, ACT Canada, and others on the panel. No matter; if any program associated with payment handling has a hard date tied to it with “incentives “, VISA must be behind it (or so the collective viewpoint seemed to be).

Enter the Alternative

There are alternatives to credit and debit payments in today’s world, and they were on prominent display at the Retail User Group Conference. Google’s Global Head of Payments Peter Hazlehurst gave a keynote on “The Future of Mobile Payments “, and on one side of the exhibit floor at the conference, PayPal had a booth with literature and demos for retailers to interact with.

The thing about PayPal that is so interesting is that transactions “feel ” different; the company’s tagline “The world’s most loved way to pay and get paid ” doesn’t seem like such a stretch. And as any Ebay shopper knows, the money moves effortlessly. To a consumer PayPal feels a lot like a debit transaction – a “verified ” payor gives PayPal real-time permission to reach into either a PayPal balance or the backup bank account to pay a “verified ” payee for goods or services. PayPal isn’t limited to digital exchanges of cash either – the company also offers credit (but that gets the traditional payment networks involved again).

The question of whether and when PayPal would start showing up in physical stores was answered back in January when PayPal announced a 50-store test with Home Depot. Apparently, the test was a success. On May 25th, the company announced that it is expanding its presence to all 2,000 Home Depot stores, plus another 15 more brick-and-mortar operators including Abercrombie & Fitch, Advance Auto Parts, Aéropostale, American Eagle Outfitters, Barnes & Noble, Foot Locker, Guitar Center, Jamba Juice, JC Penney, Joseph A. Bank Clothiers, Nine West, Office Depot, Rooms To Go, Tiger Direct and Toys “R ” Us.

What Next?

As long as consumers have a PayPal balance from buying and selling (the way Ebay’ers do), the transaction is very cheap – virtually no-cost to PayPal. Pulls from consumer bank accounts are also low cost – they work the same way an ACH transaction does. But credit transactions could be expensive because PayPal has to pay Visa, MC, or Amex for card-not-present transactions.

So a question is, as more and more consumers begin to use PayPal, what will their payment preferences be? VISA has performed market research for years on how different demographics use different payment types. One such study in 2010 raised the question: while millenials are “avid debit card users, but as they enter what historically are peak credit-using years, might they migrate to credit cards? … Credit card ownership among adults under 35 years of age declined from 76.7 percent to 72.3 percent during the period in which debit card ownership and use exploded. ” VISA apparently expects young consumers to follow the footsteps of their parents, but given several factors (the lingering global recession, difficulty starting a post-college career, the rise of omni-channel shopping, smart mobile technology adoption, and the cost of credit), we’re not so sure.

Will there be a new 800 lb. gorilla in the future? Whatever the outcome, the new payment paradigm will be consumer driven. All the hassles that are associated with traditional credit for both the merchant and the consumer may be just enough to push younger unbiased consumers to use new methods like PayPal.

And then, there’s Apple – what will they do? Our bets are that while the traditional networks will certainly not cede the competitive market without a real fight, the two emerging players to watch are PayPal and Apple.