[Dave Birch] I’m a fan of competition, not regulation. So I’ve repeatedly said, on this blog and elsewhere, that it would be much better for society as whole if retailers who don’t like Visa and MasterCard set up their own alternative payment network rather than paying lawyers to effect regulatory capture. And I say this as someone who admires Visa and MasterCard tremendously and thinks that it is better for them to have to effective competition too: this is what leads people to create great new products and services.

Where could that competition to the incumbent payment schemes come from? After all, retailers have had 50 years to set up their own scheme and they haven’t, because they recognise the benefits that that existing four-party model has brought. Well, many people have noted that the advent of mobile means that the potential for an alternative to the existing card schemes is now great and realisable. This is why we read, a few months ago, that

dissatisfied by the choices available to them from payment companies, technology companies and software companies, the major US retailers are going to band together and make their own mobile wallet.

[From Beyond the leather]

As you’ll probably have picked up from reading this blog from time to time, we have consistently advised our clients that a key milestone on the mobile payment roadmap will be the co-ordinated entry of retailers. There are many reasons for thinking that retailers, rather than (particularly) banks and mobile operators, will be able to deliver the crucial mobile wallet experience that tips mobile payments from niche to mainstream. Now we see the public announcement of the Merchant Customer Exchange (MCX) in the USA.

More than a dozen big merchants announced Wednesday their plans to jointly develop a mobile-payments network that will battle similar services from Google Inc. and other companies. Wal-Mart Stores Inc., Target Corp., 7-Eleven Inc. and Sunoco Inc. Sare among the companies hoping to elbow their way into the burgeoning market that turns smartphones into devices for making purchases.

[From Big U.S. Retailers Join Forces to Develop Mobile Wallet – WSJ.com]

This is not negative for banks or MNOs, by the way. It just means that they have to deliver the right products into the wallet space. It reinforces the strategic direction that our roadmaps have indicated, which is a focus on APIs (especially for banks), identity and authentication for the banks and MNOs working together. But that’s for another post sometime. MCX was inevitable. It is obvious, to me at least, that retailers have a tremendous advantage over other third-parties when it comes to creating a new payment solution. Perhaps now, for a variety of reasons, it is the right time for them to move. Tom Noyes made this point in a typically incisive piece recently.

The big retailers have been assuming that this settlement would be reached and have been in the midst of a plan. What would you do if someone was taking 3% of your sales and your average gross margin was 2.4% (all retail)? Well the retailers have plans to leverage a portion of this $6B windfall and invest it in a payment network they can control.

[From Random Thoughts: Settlement, NFC and CLO « FinVentures]

He has, by the way, has been consistent in his view that NFC does not deliver sufficient value at retail POS to succeed.

My prediction? ISIS and MNO initiatives will be successful in Transit. Retailers will migrate to a new commerce network that steers clear of Visa and MA.

[From NFC – Announcements Galore ! « FinVentures]

Tom may well be right – it’s certainly true that it’s proven to be rather difficult to get NFC into the marketplace, even in as well co-ordinated a market as Singapore – but there is a third way. What if retailers decide they like the ease and convenience of NFC but they don’t like the complexity of bank-issued payment cards “on top of” NFC? They might then decide to use NFC as an identification technology rather than a payment technology and handle the payments in the cloud. (As an aside, this might provide a future of the national PIN debit schemes that Tom refers to, such as EFT-POS in Australia.) It might be hard to persuade customers to get out a phone when their trusty Barclaycard works perfectly in all circumstances, but persuading them to get out a phone to use a different payment method might be easier. We know that customers are happy to experiment with alternative payments methods when they shop via the new channels (i.e., not the web).

When using a laptop or desktop, 62 percent of shoppers used a payment card, with the remaining 38 percent going for an alternative payment (PayPal, Amazon Payments, Google Checkout, etc.). But when those same shoppers worked with the same retailers using an iPhone, iPad or Android device, 67 percent of them opted for alternative payments.

[From StorefrontBacktalk » Blog Archive » Most Consumers Use Alternative Payments On Mobile, A Complete Reversal Of Desktop Pattern]

We also know that mobile makes retailer-centric solutions attractive to customers. I love my Starbucks app and I’ll bet I’ll love my Dunkin’ Donuts app when I try it out later today!

Likewise, I don’t want to carry around a hundred different retailer credit and loyalty cards, but my phone can hold a zillion. So when I go to Starbucks, my phone will select my Starbucks app, load up my Starbucks account, and generally not bother me about the details. When I walk next door into Target, my phone will select my Target app, fire up my Target card, and get down to business.

[From There’s No Stopping the Rise of E-Money – IEEE Spectrum]

So who is it who might work with retailers to create alternatives to Visa and MasterCard if they decide to go down that route? I suggested to our clients for some that the answer will be banks, and today I read that:

In a play to develop a mobile wallet of their own, a joint venture of retailers is working with banks to provide a merchant-friendly alternative to Isis, PayPal and Google Wallet.

[From Merchants Mobile-Payments Play to Work Directly with Banks – American Banker Article]

Remember, the banks don’t own Visa and MasterCard any more (except in Europe, where Visa Europe remains a membership organisation). They like Visa and MasterCard because they deliver interchange income, but if that interchange income goes away, then the banks will want find alternative sources of income (and Visa and MasterCard will have to work to provide alternative sources of value which, not being stupid, they are already doing).

Finally, by partnering with banks rather than credit card companies, Rocco thinks Gopago can save merchants money. “Together, the credit card companies had a monopoly, because they owned the payment network,” he says. “Now that network is the internet.”

[From We Don’t Have a Mobile Payment Problem; We Have a Mobile Shopping Problem | Epicenter | Wired.com]

Whatever you think about the scheme proposition, you’ve got to admit he’s got a point. When there wasn’t a network linking all the banks to all the retailers, Visa and MasterCard had to build one. But now there is just such a network, and new players may well use it for disruptive models.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers



These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers


1 comment

  1. Excellent assessment, Dave. The challenge for it is in the public markets, and V/MC wanting to manage share price based on analysts often short-term views. That constrains the, I think, but they are smart and can see what lies ahead. But the merchant-network relationship is fraught, and it will take quite some time to improve.

    At the heart of this is interchange, and if that can issue can be diffused, V/MC can focus on the value they deliver as networks, and issuers on value they deliver to consumers, and we’ll have a better market in payments.

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