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Why It’s So Darn Hard To Change Payment Infrastructure
Few other closed-loop mobile-payments providers have done even that well, although new entrants like Cimbal keep arriving.
On the other hand are startups like MobilePay USA, which uses conventional payment-card accounts and just handles the process of communicating between customer and retailer. Unlike Bling Nation, MobilePay doesn’t require NFC stickers for customers or readers for merchants. A smartphone’s GPS helps the customer figure out what store he’s in; then the customer keys in an amount and a PIN and sends the transaction to MobilePay, which sends payment info to the retailer’s POS system.
The technology is clever—but using familiar credit and debit cards already in customers’ wallets is crucial because it means MobilePay can focus on getting retailers and customers on board. The payment infrastructure is already in place.
And that may be the biggest reason Visa and MasterCard remain in the POS driver’s seat. Yes, it’s a technical challenge to re-create the payment networks that the card brands have built over the past five decades. But more important is familiarity to banks, cardholders and, yes, retailers that don’t like interchange fees, but don’t like change either.
Part of that familiarity—a part that retailers easily forget when they’re unhappy about interchange fees—is the zero-liability feature of credit cards. Closed-loop systems have no equivalent and, without it, a glitch that double- or triple-charges customers could be a major headache for the retailer a customer associates with that glitch.
And a breach that somehow empties out a customer’s bank account would be catastrophic for the customer and a nightmare for the retailer. That should not happen, as every alternative payments vendor will tell you. But if it does, it’s the retailer the customer will blame.
Then again, zero liability may not be an issue when it comes to retailers and alternative payments. After all, even alternative payment card technologies have trouble gaining traction.
Think about how successful chip-and-PIN, contactless and NFC haven’t been in the U.S. Nobody thinks they won’t work. But in practice, nobody thinks about them at all. Instead, everyone swipes magnetic stripes—even if a payment card can use chip-and-PIN or contactless.
If retailers can’t let go of something that simple, they’ll never let go of Visa and MasterCard—interchange fees and all.
-Marc
October 15th, 2010 at 2:01 pm
The world of payments has been built on two foundations. Acceptance and a guarantee of payment. To achieve those two aims infrastructure, financial viability and a deep appreciation of risk are essential. Creating an alternate form of payment to serve an already well served face to face environment has been a challenge.
I’ve seen so many come and go. Neat ideas, great technical concepts. Yet how to find Consumer facing organizations (Banks) entice their customers to want to try something new and unproven. And, how do merchant facing organizations convince their customers to invest in the infrastructure and change required to accept this NEW means of payment.
Concepts like Pay-Pal succeeded because they found a channel “the Internet” that was not well served when new sellers wanted to auction off their assets and consumers wanted to be able to purchase said assets. Getting merchant agreements from Acquiring banks facilitated Pay-Pal’s growth. Not because it was cheaper simply because setting up an account to receive payment was without complexity or need to leave funds on deposit. Once they had the base on the two sides of the transaction expanding was easy, critical mass had been achieved.
Recently I was discussing a neat low value payment mechanism “Cardis” that has been around for 12 plus years with no traction. they’ve done the work to establish their business case, yet the issue is the same that Mondex, Proton, Visa Cash and how many other ePurses’ faced. You cannot chase cash replacement till you can totally replace cash. Why load value into an ePurse when to by a hot-dog on the street I still need real cash.
I wish new entrants success, Yet caution them to think about which first the Chicken or the Egg … Consumer or Merchant … Ubiquity or novelty. Neat technology is not the issue. The consumer and merchant proposition are key.