RIP Payment Card Industry
Written by Todd L. MichaudTodd Michaud runs Power Thinking Media, which helps retailers and restaurants tackle the convergence of social, mobile and retail technologies. He spent nine years delivering technology platforms to more than 10,000 retail locations as VP of IT for Focus and Director of Retail Technology for Dunkin’ Brands.
August 2012 will go down in history as the beginning of the end for the traditional payment card industry. Discover and PayPal just teamed up to offer what could prove to be the ultimate demise of the biggest payment system monopoly: in-store payments. Without involving the POS providers.
PayPal’s Discover credit-card network deal will see PayPal integrated with Discover, which it will then push out to all merchants that accept Discover—assuming the acquirers don’t stop them. This is big news. Feeling violated by the costs of PCI compliance, merchants are loathe to spend any money on their POS technology, especially when it comes to payment systems. And although there has been a lot of news about the payment industry in the last month, noticeably absent in the media are the major POS players. On the surface, this announcement appears to remove that obstacle.
PayPal’s main value proposition is cheaper access to a customer’s money (in many cases, having the ability to use ACH transactions instead of the more expensive card processing). If PayPal does offer to reduce the cost of processing to the merchants, it gives itself a great chance of being not only adopted but marketed by merchants as a preferred payment method.
Discover brings the ability to light up more than 7 million locations without having to broker conversations with the major POS and payment device providers. It is also making a significant play to become the future processing platform for mobile transactions. If it will white label for PayPal, why not do the same for other payment platforms?
If I am Visa or MasterCard today, I am really concerned with this news. Years ago, the brands snuck into processing checking-account transactions with the invention of debit cards. They convinced everyone to pay inflated fees for these transactions to use the existing credit-card processing infrastructure. Interchange was already the biggest scam in the book, charging merchants extra fees to cover their “bad debt” while charging consumers the same thing through interest rates.
Merchants, pinching their pennies, made a poor deal. Then, just like a business being protected by the mob, merchants were further squeezed by the introduction of Payment Card Industry (PCI) compliance regulations. Merchants were told they had to pay extra for the protection (meeting PCI regulations), while giving no such assurances that the protection would cover them if they got in trouble. In fact, the entire system was set up to leave merchants holding the bag. The card brands were even brazen enough to get merchants to fund the loyalty programs of their issuing bank partners.
But that is about to change.
Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code.
-Marc
