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RIP Payment Card Industry
But that is about to change. This crazy month started with news that retail giant Starbucks had signed with Square for its payment-card processing. Although I personally think that deal is more about processing costs, it started a tidal wave of news. Next, we had an update about the merchant lead payment network and mobile payment approach being built under the MCX banner. Today, we found out that PayPal and Discover have teamed up to allow PayPal payments over the Discover network.
I think the biggest news will come in late September, when I hope that Apple will announce support for NFC in the next version of the iPhone. If Apple does one thing well, it is to simplify processes within an elegant design and bring them to the mass market.
Although Apple might change the mobile wallet landscape, it could also change the payment processing landscape with iTunes. What happens if Apple customers are able to purchase a physical item and have it billed to their iTunes account? Now, the story really gets interesting. Let’s not forget that Apple does payment aggregation, too (processing many small transactions as one large transaction), as way to save on its processing costs. Again, I expect the plot will thicken in September.
Although I’m not sure who the winner in this mobile payments battle will be, I am now confident that the there is no turning back. The industry will change, and I’m optimistic it will change for the better.
Wishing out loud, I really hope that, with this new mobile wallet world, PCI compliance standards are thrown out the window. I’m hoping that new standards are developed to protect the consumer banking information, and that these standards aren’t built intentionally vague and representing only the political interests of some of the parties involved in the process. I’m secretly hoping the MCX takes a leadership position in creating new mobile payment security standards as part of its initiative. That way, even if MCX’s mobile payment solution isn’t a winner, standards will be built to protect the merchants (and consumers) that are part of this new mobile payment ecosystem. Although building security standards isn’t a fun or glamorous role, we need to start over and build standards that match the realities of this industry.
I remember the first time I was given a presentation about mobile payments. My mind raced with the possibilities that it would afford to a retailer and the power that it could unleash. I dreamed about the possibilities of finally overthrowing an arcane system run by greedy organizations that had so little respect for their own merchants.
As months and years went by, I realized there were just too many hurdles, too many hands in the cookie jar, too much politics for it to happen. I became jaded; frustrated, like most retailers, about the cost and the complexity built into such a seemingly simple transaction and left with no other options.
But today is a new day. Let’s face it: Paying for goods and services with a piece of plastic is the modern-day equivalent of watching a movie on a VCR. We just landed a robot on Mars, I think we can make this happen.
What do you think? If you disagree (or even, heaven forbid, agree), please comment below or send me a private message. Or check out the Twitter discussion on @todd_michaud.
-Marc
August 23rd, 2012 at 10:02 am
My two cents: 2012 may be the year remembered as the tipping point in shift of power from bankers to retailers.
The beginning of the end of the payment oligopolists really started in 1999 when several large retailers finally got fed up with the twice-yearly increases in interchange and fees and started pushing back – hard. Walmart tossed the first major salvo when they sued and won a $3 billion settlement in 2003.
To all my friends on the banking and processing side of the business: Look at merchants not as an “inconvenience” between you and the cardholder, but as a client with growing choices to dis-intermediate you.
August 23rd, 2012 at 6:02 pm
Being that these are transactions going through the Discover network, won’t they still be subject to interchange rates and PCI-DSS requirements? And it looks like Visa’s announcement of their P2PE service will attempt to do much more to lock merchants into Visa while at the same time exempting them from much of the PCI-DSS requirements. http://investor.visa.com/phoenix.zhtml?c=215693&p=irol-newsArticle&ID=1727178&highlight=
August 23rd, 2012 at 6:27 pm
As for PCI, yes, in theory. Interchange will apply, but at what rate? Many questions remain. For example, PayPal’s Don Kingsborough was asked Wed. about whether these transactions would be considered card-present or card not present. That’s a very interesting question as the card is not really present. When asked directly, he said “it depends on the kinds of transactions. More to come about this as we get closer to the launch in the second quarter.” Not especially comforting, but it does signal that interchange issues are far from solidified at this point.
August 24th, 2012 at 12:25 pm
Todd,I agree with your views 100. It will not happen over night but the cat is out of the bag. The infrastructure did not exist 20 years ago so the fees justified the risk. Today, the merchants can use the same infrastructure and also now have closed loop payments well tested.
At a very high level I think we are going to see two types of payment groups: 1)ubiquitous, Private, Open loop and 2) relationship, value add, closed loop. Visa like vs MCX like. Some consumers will want privacy and universal use, while others will want a relationship with the merchants (and receive extra value). They will likely do both. Mobile will turbo charge the the second group. So if the MCX like offers are reloaded via the consumers bank then the credit card players of today are headed for a huge volume haircut.
August 24th, 2012 at 6:28 pm
Todd, I empathize with you and I’m in the processing business. But, the end of the payment brand monopoly is just a dream, or for many a nightmare. With this announcement, PayPal has simply joined the payment brand club, which includes Visa, MasterCard, Amex, and Discover. In fact the winner here is Discover as PayPal cards will have Discover numbers and of course will be subject to Discover interchange. It does not matter who the processor is, or what the platform is, whatever payment brand logo is on the card, that is the network it must pass through to be processed. Which means there will always be interchange assessed on the transaction, period. I certainly agree with you on PCI compliance and security, merchants should not have to pay for security, it should be part of their processing agreement. However, the payment brands have a near universal monopoly on payments and it won’t be changing in my lifetime or yours.
August 26th, 2012 at 9:03 am
If there is enough pressure on visa/mastercard, one would think they would react by lowering fees. Let’s face it, those cards are going to be around a while. Looking back to 2001, cc processing fees were .2 of sales and now stands to reach .8 of sales, as that continues to rise, you will see opportunities to make money and to create competition amongst processing fees, which should in turn reduce the cost to the retailer. Where does that pressure come from, is it discover/paypal, or is it the retailer? Think of all the money spent on transaction fees in the grocery industry, roughly $5 to $6 billion a year, there is room for grocers to put the pressure on the cc companies, but it will take communication and promotion by the retailer to the consumer.
August 28th, 2012 at 10:36 am
Evan,
Why in God’s name don’t you have a “tweet this” option for your articles? Or at least summaries… It would make a big difference.
You must be heard!
Hope all is well.
Cheers,
Rich
August 28th, 2012 at 1:44 pm
We used to but it was slowing down the site–and sometimes crashing the site–too often.
August 29th, 2012 at 1:28 pm
I agree with Todd on many of his insightful points and predictions of the future.
However, in at least one comment PayPal is riding on the Discover network.
This may be only a TEMPORARY arrangement.
Combined with the news of the MCX network these two concepts signal a turning point in payment processing and I am confident that others will surface as the market / perception matures.
I’ve always seen PCI compliance as only a stop-gap to plug holes in the insecure and some say “broken” credit card transaction processes we’re all required to use.
There will be a dilution of efforts as many proposed products and standards come online, only now available due to the advancement of communications and technology.
As technology quickly and ultimately evolves clear “winners” will rise to the top for the benefit of merchant and consumer alike.
Interesting times!