[Dave Birch] I saw a post about Celent’s current payment advisory:

Celent expects some major shake-ups to occur in the payments industry in the near future. A new report, Disruption in the Payments World, examines the storms brewing that could have dire consequences for many issuers and offers insight into strategies that could help them weather these storms.

[From CELENT :: Strategy Consulting for Financial Institutions]

Just for “fun”, I thought I’d compare my view of the advisories with theirs so I spent some time on the train putting it all together in the same format. Here’s the combined result:

Payment system disruption

Where we appear to is on the issue of the most likely origins of a new, potentially disruptive, payment network. I’m cooler on the potential for bank-led disruption, simply because I don’t think banks have the appetite for the risk or the management bandwidth to deal with it. Sure, they have “privatised” Visa and MasterCard, but to make it worth creating a competing network they would have to come up with some way of delivering a better or cheaper service. The stand-out platform for this is mobile, not cards, and banks will take time to get a grip on the new value network. It’s certainly the case that a more limited kind of competitor (let’s say a reborn Bank Americard that didn’t target universal acceptance) could succeed, but I’m not sure that’s what was meant. The main way that such a competitor would obtain traction would be through reduced merchant service charges (possible because of zero interchange), which naturally leads us to think about the merchant themselves. They’ve been complaining again about Visa/MC interchange, claiming that the “hidden fee charged by the two card giants is projected to cost the average U.S. family more than $400 this year.” Which, I imagine, is about what it costs them for cash, but that’s by the by. They’re also not factoring in to their cost/benefit calculations the well-known fact that the average spend on cards is higher than it is on cash, thus increasing merchant profits. But that’s not my point.

A disinterested observer might wonder why merchants spend so much money on lobbying to push down payment scheme revenues rather than just doing it themselves. Why don’t Sears, Gap, Amazon and Best Buy just set up a new merchant-based scheme: forget about cards, just and switch loyalty / online PIN to an ACH front end or something similar, like disconnected debit? If, for example, convenience stores paid twice as much in interchange as they made in profit, then presumably they’d be happy to commit part of the $7 billion in setting up such a system. They’re the stakeholders with the most to gain, which is why I rate the disruptive potential here higher than Celent do, and can see the barriers to entry falling as the interweb and mobiles steadily spread.

Send me your red / yellow / green alert pictures — I’ll send a book prize to the first person to send me one.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

2 comments

  1. Great post.
    Personally, I’m betting big in the solar sector. I believe it will be huge in the future, with rising oil prices. I’m currently holding ESLR, JASO, SOLF and WFR, and considering entering in either ASTI or DSTI.
    Stay safe, stops are in, emotions are out!

  2. > A disinterested observer might wonder why merchants
    > spend so much money on lobbying to push down payment
    > scheme revenues rather than just doing it themselves.
    That I have wondered myself. I think a core issue here is that the market place has as much a belief that “payments belong to banks” as the banks themselves. To most serious businessmen, they can’t unravel the two.
    One of the extraordinary results of the last 1.5 decades of experimentation was that alternative payment systems were successful only outside retail. Everyone made the same mistake and assumed that retail was the place to be … but nowhere did this work out.
    Cases in point: Paypal, which succeeded because it found itself powering eBay, a new non-retail channel (although both then successfully rode that wave into straight retail). Similar result for WebMoney and the gold guys with different twists.

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