Target outages show the failings of cash as backup

Target in the past 48 hours suffered a pair of unrelated point of sale outages that had at least one thing in common — they resulted in consumers scrambling for a contingency that would have been little problem as recently as four or five years ago.

The Twin Cities-based retailer had an internal technology issue for about two hours on Saturday and a third-party payments vendor suffered a data glitch that caused Target point of sale systems to go dark on Sunday for an additional 90 minutes.

The main problem with these glitches was not a data breach — Target was quick to make that clear, as to avoid comparisons to the high-profile breach it suffered in 2013. Target also quickly fixed the weekend's issues, and registers were up and running relatively quickly.

The big problem was the window in which paper was the fallback option. Consumers at Target stores reported long lines, major delays and “frantic” store managers, reported The New York Times, Time Magazine, and Target’s own Twitter feed. There were hundreds of complaints, jokes, and tales of lines snaking around stores. Target’s corporate office phone lines jammed because of calls from store managers seeking guidance.

https://t.co/64gCTgrH2C pic.twitter.com/t4h7A3q3QO

— Target News (@TargetNews) June 15, 2019

Some stores reported consumers were told to try cards and then told to pay with cash or check; while other stores reportedly gave consumers discounts to make amends for their troubles. Consumers also reported being able to use Target's mobile app as a workaround to buy items for in-store pickup.

Target did not disclose the scope of the outages, such as how many stores were impacted or how many payments did not go though. In an email, Target's PR office said NCR is the third party payment vendor tied to the Sunday incident, adding NCR experienced an issue at one of its data centers. NCR did not return a request for comment.

But the outages show just how unprepared retailers are when cash or checks become their main fallback position.

And Target’s not alone. A Visa outage in 2018 lasted about 10 hours, impacting merchants mostly in the U.K. and Europe. Visa initially did not offer a detailed report on what caused the outage, though the card brand said the responsible payment systems were already in the process of being replaced.

At nearly the same time, Mastercard suffered an outage that lasted about 90 minutes; and Halifax and Lloyds suffered temporary outages that were attributed to malfunctions in faster payment processing. The U.K.’s faster payments system also suffered temporary outages in 2018.

These outages were partly the result of the stress of new payment types such as mobile wallets and real-time processing on legacy point of sale hardware and processing.

Earlier this year, Albert Heijn, a Netherlands-based retail chain, suffered a PIN failure that caused a temporary outage at the point of sale. In that case the culprit was a failure in the firewall at KPN, a telecom that filtered data traffic for the retailer. The firewall’s backup blocked all debit card communication, causing millions of dollars in payment loses.

The causes of these glitches are all slightly different — telcos, faster payment systems, third- party payment vendors, and legacy systems that were scheduled to be sunset.

But all of these incidents showed the chaos that results when people have little option other than to pay with cash or checks. The Visa U.K. outage resulted in stranded passengers who could not pay for trains and the odd contingency of some retailers using makeshift handwritten notes to serve in place of digital receipts. The Albert Heijn outages caused some stores to close because they could not accept payments in any form.

One of the recurring themes of the Target outages was consumers complaining that they did not have to use cash or checks to pay at a store “in years.”

About 30% of Americans say they make no purchases with cash in a typical week, up from a quarter in 2015, according to the Pew Research Center, adding the share of people who make all or nearly all of their purchases in cash fell to 18% from 24% in 2015. And U.S. Bank found 50% of consumers say they carry cash less than half of the time they are out, and 76% say they keep less than $50 when they do carry cash.

Writing for PaymentsSource, Steve Gilde, director of global payments for Paragon, contends that given the proliferation of faster processing, digital payments and the decline of paper-based payments and physical points of sale, merchants and processors are under pressure to come up with new ways to manage outages.

These outages, Gilde argues, are inevitable and varied in cause, resulting in a need for a more automated and flexible testing system that reduces the chance for manual errors.

Recently Amazon and other companies building cashierless technology began using automated hypothetical contingencies to train the AI engines that respond to potential glitches and other factors that could interrupt the digital payments systems. Amazon also recently began accepting cash at Amazon Go, but this still relies on an employee being able to scan in customers using the store's account.

"These cases illustrate the systemic importance of digital payments in modern society," said Ron van Wezel, a senior analyst at Aite in Amsterdam. "Cash can no longer function as a proper backup. I don't think outsourcing to third parties is an issue, but large retailers should have contingency plans in place."