Red, yellow and green alert
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.
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:
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.
