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This had to happen sooner or later. The fact that we live in the world of co-opetition is best seen in the evolving world of mobile payments. Everyone either has a mobile wallet of their own or plan to have one. The notable ones of course are google wallet, ISIS (the consortium of carriers - AT&T, Verizon and T-Mobile), Visa, Mastercard, the card issuers and the list goes on...the problem is that while they are competing, they also need to work with each other for the business model and technoology to work and create real value.
I think thats what led to this news story in which Google said that Verizon had asked them not to include the Google wallet in the upcoming release of Samsung Galaxy Nexus. That means Galaxy Nexus owners will not be allowed to download Google's new NFC-based tap-and-pay application from the Android Market.Instead of Google Wallet, Galaxy Nexus users will be offered Isis, Verizon's forthcoming NFC payment system, expected to launch in mid-2012. Isis is a joint partnership between AT&T, T-Mobile and Verizon.
Later, Verizon clarified that they were not "technically blocking" the app. At least they blamed it on security - What seems to be at issue is whether Verizon's security team can integrate Google Wallet into a "secure hardware element," or the system for storing private data, in phones with near field communications (NFC) technology. Google Wallet would need to work with whatever secure element Verizon and its partners in the Isis mobile payment venture are using. The secure element contains a user's personal information that allows a payment to be made.
The battle of course is about who controls the secure element and hence the key to the application. To me, thats the crux of the issue.
While we can get stuck in the technical issues, the issue is a pretty fundamental one. Most of these players need to work together for a successful business model and the stakes are high. The go-it-alone approach is likely not going to succeed although PayPal and Square may have a different opinion.
Remains to be seen who has the most leverage and staying power because I suspect its going to take a long time before mobile payments, especially in the offline world, becomes main stream.
Saturday, December 10, 2011
Saturday, November 26, 2011
PayPal Launches Facebook App for P2P
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PayPal recently announced a "Send Money" app on Facebook.It allows a sender to send money to another PayPal user and to give it a social twist, PayPal has added the ability to send an e-card with the payment.
According to this article, "While there are several ways to pay with PayPal via Facebook (Payvment comes to mind), this is the first app to enable peer-to-peer payments via Facebook and PayPal. And because it's a peer-to-peer transaction, there is no transaction fee, though PayPal's regular limits and international fees still apply.
"Sending money, person to person, is free," PayPal Senior Product Marketing Manager JB Coutinho said. "If it's funded by a PayPal balance or linked to a bank account, it's free."
Despite some media reports, it is not a new partnership between Facebook and PayPal. It is simply PayPal creating an App on the Facebook platform. The interface is quite simple and the fact that its free, just like most P2P transactions, does add to the appeal. e-Cards is a nice feature as well. PayPal pointed out that more than 500M e-cards get sent out every year and gifting is a huge market.
I don't see this app taking off in a big way in the short term and this is no reflection on PayPal. I think there is a question mark in general about transactions happening on Facebook but you got to appreciate the fact that PayPal has been very aggressive and smart about making its platform available at every place where a payment transaction is conceivable and this is another good step in that direction.
PayPal recently announced a "Send Money" app on Facebook.It allows a sender to send money to another PayPal user and to give it a social twist, PayPal has added the ability to send an e-card with the payment.
According to this article, "While there are several ways to pay with PayPal via Facebook (Payvment comes to mind), this is the first app to enable peer-to-peer payments via Facebook and PayPal. And because it's a peer-to-peer transaction, there is no transaction fee, though PayPal's regular limits and international fees still apply.
"Sending money, person to person, is free," PayPal Senior Product Marketing Manager JB Coutinho said. "If it's funded by a PayPal balance or linked to a bank account, it's free."
I don't see this app taking off in a big way in the short term and this is no reflection on PayPal. I think there is a question mark in general about transactions happening on Facebook but you got to appreciate the fact that PayPal has been very aggressive and smart about making its platform available at every place where a payment transaction is conceivable and this is another good step in that direction.
Sunday, September 11, 2011
An Interesting Way to Represent Mobile Payments
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I noticed this infographic on Mobile Payments at MobilePaymentstoday.com. Its a useful and simple way to explian the different types of mobile payments ecosystems and how different players fit into it. Although its not comprehensive and fails to explain the role of banks, I still think its a good way to categorize some of the key players.
The most important mobile payment infographic. Ever.
Compliments of MobilePaymentsToday.com
I noticed this infographic on Mobile Payments at MobilePaymentstoday.com. Its a useful and simple way to explian the different types of mobile payments ecosystems and how different players fit into it. Although its not comprehensive and fails to explain the role of banks, I still think its a good way to categorize some of the key players.
The most important mobile payment infographic. Ever.
Compliments of MobilePaymentsToday.com
Sunday, July 31, 2011
eBay Acquires Zong - Makes Aggressive Bet on the Digital Goods Market
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On July 7th, eBay announced that "It has agreed to acquire Zong, a leading provider of payments through mobile carrier billing, for total consideration of approximately $240 million in cash. Zong leverages connections with more than 250 mobile network operators around the world, offering localized, secure and easy-to-use payments capabilities for digital goods and services in 21 languages and 45 countries."
Zong allows consumers to easily pay for purchases from their mobile phones or computers through direct carrier billing. Consumers simply enter their mobile phone numbers.
Earlier this year, PayPal launched PayPal for Digital Goods, a new product that lets buyers pay in two clicks without leaving their gaming experience or content site. In 2010, PayPal processed $3.4 billion in payments for digital goods.
This acquisition is quite synergistic and adds a new capability to PayPal which will allow it to move more aggressively in the digital goods market. The business model around carrier billing is ideally suited to this market since the gross margins are very high and carriers are able to effectively extend a credit to the consumer (till their next billing cycle) in return. This could be particularly useful for gaming and purchase of goods/services from the mobile phone.
Its also an acknowledgment by PayPal that its recent moves (new pricing model) that it rolled out last year for the digital goods market might still not be attractive enough for this market and its probably still perceived to be too high. Besides, the payment processing is not as frictionless as carrier billing, esp for the first time user.
According to this PayPal blog, Zong's carrier relationship could provide access to upto 4B cell phone subscribers around the world and could provide rapid growth in international markets.
It will be interesting to see how some of the other players in the carrier billing space such as Boku react.
On July 7th, eBay announced that "It has agreed to acquire Zong, a leading provider of payments through mobile carrier billing, for total consideration of approximately $240 million in cash. Zong leverages connections with more than 250 mobile network operators around the world, offering localized, secure and easy-to-use payments capabilities for digital goods and services in 21 languages and 45 countries."
Zong allows consumers to easily pay for purchases from their mobile phones or computers through direct carrier billing. Consumers simply enter their mobile phone numbers.
Earlier this year, PayPal launched PayPal for Digital Goods, a new product that lets buyers pay in two clicks without leaving their gaming experience or content site. In 2010, PayPal processed $3.4 billion in payments for digital goods.
This acquisition is quite synergistic and adds a new capability to PayPal which will allow it to move more aggressively in the digital goods market. The business model around carrier billing is ideally suited to this market since the gross margins are very high and carriers are able to effectively extend a credit to the consumer (till their next billing cycle) in return. This could be particularly useful for gaming and purchase of goods/services from the mobile phone.
Its also an acknowledgment by PayPal that its recent moves (new pricing model) that it rolled out last year for the digital goods market might still not be attractive enough for this market and its probably still perceived to be too high. Besides, the payment processing is not as frictionless as carrier billing, esp for the first time user.
According to this PayPal blog, Zong's carrier relationship could provide access to upto 4B cell phone subscribers around the world and could provide rapid growth in international markets.
It will be interesting to see how some of the other players in the carrier billing space such as Boku react.
Monday, June 20, 2011
Google's Mobile Wallet - An Open Ecosystem?
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The announcement of Google's Mobile Wallet has brought a flurry of activity in the banking and payment space. It has also created a lot of buzz around the whole concept, not that there was a lack of buzz to start with !! But this announcement in particular is important because it comes from a company that has the ability to turn business models upside down as well as the necessary cash and desire to help them build an ecosystem that is likely to take perhaps a decade before it begins mainstream in the US.
The question that is being most hotly debated is the one of business model and who is likely to play the dominant role and hence gain the most from the adoption of mobile payments.
1. The first one is between who owns the NFC chip or the hardware on the phone that stores the "secure element" and the payment information on the phone. Carriers and phone manufacturers have been fighting over it for a while now and that led to the emergence of ISIS, a consortium of Verizon, AT&T and T-mobile. They started with the intent to build out a whole new payment network but quickly adapted to say that they are an open network and have been openly and aggressively inviting anyone and everyone to join including the card networks and card issuers.
2. Google has taken the "App" approach and is mostly focused on owning the consumer relationship without trying to participate in the revenue stream. This is classic Google. They have done it with Search and more recently with Android. By sitting in the middling of these transactions and its ability to sit on top of every Android phone, it has the ability to capture rich information about the transaction, consumer behavior and marry it with the phone's data such as location etc. They are of course the masters of data mining and hence create an amazing asset for merchants, advertisers and of course for Google. So their business model does not disrupt any of the players in the current value chain but do create value for everyone else. This is really appealing. The question is how is Google planning to incent carriers and merchants to adopt.
3. That leaves the banks and merchants on how they plan to play in the space. Some bank/card issuers are working on their own wallets but I think those are very restrictive. Similarly, it would not make sense for merchants to plan on creating mobile payment/checkout experience on a standalone basis. So, they need to probably participate in a more open ecosystem such as ISIS or Google or both. But they would need a strong incentive to invest in NFC enabled POS terminals.
It will be interesting to see how Google creates incentives for every player in the value chain but in my view, they are probably closer to a business model that could work than any other initiatives we have seen so far.
The announcement of Google's Mobile Wallet has brought a flurry of activity in the banking and payment space. It has also created a lot of buzz around the whole concept, not that there was a lack of buzz to start with !! But this announcement in particular is important because it comes from a company that has the ability to turn business models upside down as well as the necessary cash and desire to help them build an ecosystem that is likely to take perhaps a decade before it begins mainstream in the US.
The question that is being most hotly debated is the one of business model and who is likely to play the dominant role and hence gain the most from the adoption of mobile payments.
1. The first one is between who owns the NFC chip or the hardware on the phone that stores the "secure element" and the payment information on the phone. Carriers and phone manufacturers have been fighting over it for a while now and that led to the emergence of ISIS, a consortium of Verizon, AT&T and T-mobile. They started with the intent to build out a whole new payment network but quickly adapted to say that they are an open network and have been openly and aggressively inviting anyone and everyone to join including the card networks and card issuers.
2. Google has taken the "App" approach and is mostly focused on owning the consumer relationship without trying to participate in the revenue stream. This is classic Google. They have done it with Search and more recently with Android. By sitting in the middling of these transactions and its ability to sit on top of every Android phone, it has the ability to capture rich information about the transaction, consumer behavior and marry it with the phone's data such as location etc. They are of course the masters of data mining and hence create an amazing asset for merchants, advertisers and of course for Google. So their business model does not disrupt any of the players in the current value chain but do create value for everyone else. This is really appealing. The question is how is Google planning to incent carriers and merchants to adopt.
3. That leaves the banks and merchants on how they plan to play in the space. Some bank/card issuers are working on their own wallets but I think those are very restrictive. Similarly, it would not make sense for merchants to plan on creating mobile payment/checkout experience on a standalone basis. So, they need to probably participate in a more open ecosystem such as ISIS or Google or both. But they would need a strong incentive to invest in NFC enabled POS terminals.
It will be interesting to see how Google creates incentives for every player in the value chain but in my view, they are probably closer to a business model that could work than any other initiatives we have seen so far.
Monday, May 30, 2011
Bank of America, Chase, Wells Fargo form new venture for P2P Payments
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"Bank of America, JPMorgan Chase and Wells Fargo announced that they have formed a new venture to enable their customers to move money more conveniently and safely using a mobile number or email address." According to the release, "clearXchange is the first bank-owned solution of its kind and the service is available to its partners today."
The three banks will own and run Clearxchange and will integrate with other financial institutions and "end points ", presumably other services such as Popmoney and Zashpay.
Bank of America and Wells Fargo began rolling out clearXchange to customers in Arizona in late April. JPMorgan Chase will begin making it available to customers soon, and the three banks will gradually roll the service out during the next year. Each bank will have the ability to price the service to its consumers,although it will initially be offered for free by both Bofa and Wells.
While this is clearly a competition for other P2P providers as well as to PayPal, it could also help drive the consumer awareness and hence the number of P2P transactions initiated from bank websites.
It will be interesting to see how the service evolves. Most of these services that are owned by banks have been notoriously slow to take off and the governance of the company does become difficult because the same banks also compete among each other for customers and provide competing services. It reminds me of the initiative in India where NPCI took over the governance of such clearing house. While not ideal, it is a sign of how difficult it is for banks to participate in services that require an open network and collaboration.
"Bank of America, JPMorgan Chase and Wells Fargo announced that they have formed a new venture to enable their customers to move money more conveniently and safely using a mobile number or email address." According to the release, "clearXchange is the first bank-owned solution of its kind and the service is available to its partners today."
The three banks will own and run Clearxchange and will integrate with other financial institutions and "end points ", presumably other services such as Popmoney and Zashpay.
Bank of America and Wells Fargo began rolling out clearXchange to customers in Arizona in late April. JPMorgan Chase will begin making it available to customers soon, and the three banks will gradually roll the service out during the next year. Each bank will have the ability to price the service to its consumers,although it will initially be offered for free by both Bofa and Wells.
While this is clearly a competition for other P2P providers as well as to PayPal, it could also help drive the consumer awareness and hence the number of P2P transactions initiated from bank websites.
It will be interesting to see how the service evolves. Most of these services that are owned by banks have been notoriously slow to take off and the governance of the company does become difficult because the same banks also compete among each other for customers and provide competing services. It reminds me of the initiative in India where NPCI took over the governance of such clearing house. While not ideal, it is a sign of how difficult it is for banks to participate in services that require an open network and collaboration.
Sunday, April 24, 2011
Discover Launches its P2P Solution in Partnership with PayPal
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Discover Card has joined the fray with other card networks with the launch of its P2P application, "Money Messenger", in partnership with PayPal. They had announced this partnership more than a year ago but the service was launched a couple of weeks ago at http://www.discovercard.com/
Here is how it works:
I liked the simple user experience and the seamless sender experience using the Discover Card as a funding source. Its creates a unique differentiation for Discover Card and can be used for "Balance Build". It helps that it is treated as a purchase and the transaction is free to the sender, unlike the Visa or MasterCard model where there is an interchange fee which must be paid to the issuer. In a lot of cases, it gets passed on to the sender. Discover of course has the advantage of being its own issuer.
However, I am not sure PayPal being the only destination account is a ubiquitous solution for a true P2P application. Granted that PayPal has a very large network but it is clearly a partial solution, especially for those recipients who do not have a PayPal account. And even for those that do, I am not sure if it is the same as receiving money in a bank account or on a card.
Discover Card has joined the fray with other card networks with the launch of its P2P application, "Money Messenger", in partnership with PayPal. They had announced this partnership more than a year ago but the service was launched a couple of weeks ago at http://www.discovercard.com/
Here is how it works:
- All you need is the recipient's e-mail address or mobile phone number
- There are no fees to send money
- Earn Cashback Bonus on every transaction
- Amount will be charged to your Discover card account like a purchase
- Send up to $200 a day ($500 per month)
I liked the simple user experience and the seamless sender experience using the Discover Card as a funding source. Its creates a unique differentiation for Discover Card and can be used for "Balance Build". It helps that it is treated as a purchase and the transaction is free to the sender, unlike the Visa or MasterCard model where there is an interchange fee which must be paid to the issuer. In a lot of cases, it gets passed on to the sender. Discover of course has the advantage of being its own issuer.
However, I am not sure PayPal being the only destination account is a ubiquitous solution for a true P2P application. Granted that PayPal has a very large network but it is clearly a partial solution, especially for those recipients who do not have a PayPal account. And even for those that do, I am not sure if it is the same as receiving money in a bank account or on a card.
Sunday, April 10, 2011
American Express Gets in to the P2P space with "Serve"
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American Express launched its own digital wallet, "Serve", ostensibly launched using the Revolution Money Platform that it acquired a couple of years ago. Serve is not restricted to Amex cardholders; any card brand or bank account can be used to fund Serve transactions, and it works automatically with any merchant that already accepts Amex cards.
It looks very similar to PayPal. It is open to any consumer and not tied to an Amex card. Hence the choice of a separate brand. It is essentially a stored value account and is tied to a prepaid card that can get accepted at any merchant location that accepts an Amex card.
"This is not an Amex wallet," said Dan Schulman, American Express' group president for enterprise growth. Serve "allows us to address a larger chunk of the marketplace that we haven't before."
"This is not an Amex wallet," said Dan Schulman, American Express' group president for enterprise growth. Serve "allows us to address a larger chunk of the marketplace that we haven't before." Later this year, Amex will allow third-party developers to connect to Serve using software development kits and open application programming interfaces.
This seems to be a smart move from Amex in the sense that keeping it as a separate brand and open to all consumers enables them to go after non-amex card holders with value added services such as free P2P and a prepaid card for spending from the account. I am sure the move surprised quite a few and it is definitely aimed at competing with card networks such as Visa and Mastercard.
What is unclear yet is why would a consumer open yet another account and carry yet another card. While PayPal was able to convince consumers to do so, it had the benefit of the ebay platform that did not have a frictionless payment platform. With no unique benefits and little association to the American Express brand, it is going to be extremely difficult to build scale for this service.
American Express launched its own digital wallet, "Serve", ostensibly launched using the Revolution Money Platform that it acquired a couple of years ago. Serve is not restricted to Amex cardholders; any card brand or bank account can be used to fund Serve transactions, and it works automatically with any merchant that already accepts Amex cards.
It looks very similar to PayPal. It is open to any consumer and not tied to an Amex card. Hence the choice of a separate brand. It is essentially a stored value account and is tied to a prepaid card that can get accepted at any merchant location that accepts an Amex card.
"This is not an Amex wallet," said Dan Schulman, American Express' group president for enterprise growth. Serve "allows us to address a larger chunk of the marketplace that we haven't before."
"This is not an Amex wallet," said Dan Schulman, American Express' group president for enterprise growth. Serve "allows us to address a larger chunk of the marketplace that we haven't before." Later this year, Amex will allow third-party developers to connect to Serve using software development kits and open application programming interfaces.
This seems to be a smart move from Amex in the sense that keeping it as a separate brand and open to all consumers enables them to go after non-amex card holders with value added services such as free P2P and a prepaid card for spending from the account. I am sure the move surprised quite a few and it is definitely aimed at competing with card networks such as Visa and Mastercard.
What is unclear yet is why would a consumer open yet another account and carry yet another card. While PayPal was able to convince consumers to do so, it had the benefit of the ebay platform that did not have a frictionless payment platform. With no unique benefits and little association to the American Express brand, it is going to be extremely difficult to build scale for this service.
Wednesday, March 23, 2011
Google to Test Mobile Payments in NYC and San Francisco
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Google Inc. (GOOG) plans to start testing a mobile-payment service at stores in New York and San Francisco within four months, letting shoppers use their phones to ring up purchase.Citing two sources familiar with the initiative, Bloomberg reports Google will pay for the installation of thousands of NFC-optimized cash register units produced by VeriFone Systems, with trials kicking off sometime during the next several months. Sources add the Google service may combine consumer's financial account information with gift-card balances, store loyalty cards and coupon services on a single NFC chip.
Back in November, Google CEO Eric Schmidt had said that the company will leverage NFC technologies to enable consumers to touch Android smartphones together to share information or data.
The mobile payments battle continues to heat up with several large players seem committed to this market. This includes:
- the carriers, who created ISIS (a consortium of Verizon, AT&T and T-Mobile) in partnership with Discover Financial Services
- Phone manufacturers including Apple, with a strong base of 200M consumers on iTunes and RIM-Networks such as Visa and Mastercard-Banks
- and of course PayPal
Its mind boggling to think of the amount of resources and money that is being spent to get a piece of a rapidly growing mobile payments market. While consumer and merchant adoption remains a challenge, my view is that its simply a question on when, not whether. The stakes are high and the market is still in a very fluid state.
The business model is still unclear and while every player wants to own the primary consumer relationship, its difficult to predict how it will pan out. Each of these players in the eco-system - Telcos, handset manufacturers and card networks/issuers have very strong brands and have a direct relationship with the consumers in their own right. How is gets divided when all of these have to participate in the mobile payments eco-system is the big question.
Google Inc. (GOOG) plans to start testing a mobile-payment service at stores in New York and San Francisco within four months, letting shoppers use their phones to ring up purchase.Citing two sources familiar with the initiative, Bloomberg reports Google will pay for the installation of thousands of NFC-optimized cash register units produced by VeriFone Systems, with trials kicking off sometime during the next several months. Sources add the Google service may combine consumer's financial account information with gift-card balances, store loyalty cards and coupon services on a single NFC chip.
Back in November, Google CEO Eric Schmidt had said that the company will leverage NFC technologies to enable consumers to touch Android smartphones together to share information or data.
The mobile payments battle continues to heat up with several large players seem committed to this market. This includes:
- the carriers, who created ISIS (a consortium of Verizon, AT&T and T-Mobile) in partnership with Discover Financial Services
- Phone manufacturers including Apple, with a strong base of 200M consumers on iTunes and RIM-Networks such as Visa and Mastercard-Banks
- and of course PayPal
Its mind boggling to think of the amount of resources and money that is being spent to get a piece of a rapidly growing mobile payments market. While consumer and merchant adoption remains a challenge, my view is that its simply a question on when, not whether. The stakes are high and the market is still in a very fluid state.
The business model is still unclear and while every player wants to own the primary consumer relationship, its difficult to predict how it will pan out. Each of these players in the eco-system - Telcos, handset manufacturers and card networks/issuers have very strong brands and have a direct relationship with the consumers in their own right. How is gets divided when all of these have to participate in the mobile payments eco-system is the big question.
Sunday, February 13, 2011
Visa Makes Another Move in the Digital Payments Space; Acquires Playspan
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Last week, Visa announced, "...an agreement to acquire PlaySpan Inc., a privately held company whose payments platform handles transactions for digital goods in online games, digital media and social networks around the world. The acquisition of PlaySpan complements Visa's 2010 CyberSource acquisition and extends the company's capabilities into one of the fastest-growing segments of eCommerce - digital and mobile commerce."
Visa will pay $190M in cash for the acquisition. PlaySpan offers a payments platform specifically targeted for the digital goods and gaming platform. Digital goods which generated an estimated $25 billion in consumer spending globally in 2010, a figure expected to reach $280 billion by 2014. PlaySpan sells a virtual currency that can be used to pay fees and make purchases within many popular computer games, including FarmVille and EverQuest. Facebook Inc. also uses PlaySpan's monetization service to give its Facebook Credits users payment options, although it is not clear to me how this compares against the deal Facebook announcmed with PayPal a few months back.
I think this is smart move by Visa to entrench itself early in the fast growing space, although I am not sure about the "high" valuation of Playspan. The deal along with its acquisition of cybersource demonstrates its strong commitment to this e-commerce market. This also comes on the heels of PayPal announcing its own micro payments platform.
It will be interesting to see how some of the other players, esp Mastercard react to this acquisition.
Last week, Visa announced, "...an agreement to acquire PlaySpan Inc., a privately held company whose payments platform handles transactions for digital goods in online games, digital media and social networks around the world. The acquisition of PlaySpan complements Visa's 2010 CyberSource acquisition and extends the company's capabilities into one of the fastest-growing segments of eCommerce - digital and mobile commerce."
Visa will pay $190M in cash for the acquisition. PlaySpan offers a payments platform specifically targeted for the digital goods and gaming platform. Digital goods which generated an estimated $25 billion in consumer spending globally in 2010, a figure expected to reach $280 billion by 2014. PlaySpan sells a virtual currency that can be used to pay fees and make purchases within many popular computer games, including FarmVille and EverQuest. Facebook Inc. also uses PlaySpan's monetization service to give its Facebook Credits users payment options, although it is not clear to me how this compares against the deal Facebook announcmed with PayPal a few months back.
I think this is smart move by Visa to entrench itself early in the fast growing space, although I am not sure about the "high" valuation of Playspan. The deal along with its acquisition of cybersource demonstrates its strong commitment to this e-commerce market. This also comes on the heels of PayPal announcing its own micro payments platform.
It will be interesting to see how some of the other players, esp Mastercard react to this acquisition.
Sunday, January 23, 2011
The Future and Impact of Debit Interchange
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On December 16 2010 the Board of Governors of the Federal Reserve System released for comment a proposed regulation to implement the debit interchange fee and network exclusivity and routing provisions of the Durbin Amendment – Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. For each of the two primary provisions covered by the proposed rule – debit interchange fee regulation and network exclusivity/routing regulation – the board has proposed two alternative regulatory regimes.
Interchange Fee Proposal - all issuers could collect a per-transaction interchange fee up to $0.07 a transaction. Issuers could seek a higher fee, but never more than $0.12 a transaction, based on actual costs. The fee could be no more than the issuer's total allowable costs divided by the total number of debit card transactions during the previous year.
Debit card exclusivity and routing regulation -The proposed rule also includes regulations, as contemplated by the Durbin Amendment, prohibiting contracts, rules or other arrangements under which a debit card can be processed only by a single network (or only by affiliated networks). The Durbin Amendment also prohibits issuers and networks from inhibiting a merchant's ability to route a transaction over any one of the available networks.
The amendment only applies to the high-rolling banks with assets greater than $10 billion. The bill aims to give a competitive advantage to small banks by going after the big guys.
Impact on the industry and the consumers -
Consumers - I have mixed feelings on this one. Initially, I was happy to see regulations that would decrease the cost to merchants which could potentially lead to reduced cost for the consumers. But as I think more about the proposed regs, I think banks/issuers will figure out ways to make up the "lost" revenue through other means. We have already heard Jamie Dimon (JPM Chase) talk about the impact on the underbanked segment in particular and increased fees for checking accounts. Also, I fully expect issuers to levy other charges such as annual fees for debits cards, reduced rewards etc., which in the end will impact the consumers negatively.
Those who opposed the regulation, often cite the example of Australia, which tested similar legislation when the government capped interchange fees. The annual fee in Australia increased by 22 percent for standard cards and 47- 77 percent for rewards cards.
Issuers and Banks - As mentioned above, while it may have short term impact on their debit interchange revenues, they would figure out other ways to skin the cat or pass on the cost to other products and services.
Merchants - I can't imagine how this can be bad for the merchants. It will perhaps benefit the larger merchants disproportionately.
While it remains to be seen if the law gets passed and with what changes. Lobbyists from both sides (issuers and merchants) are working overtime to make their case and I suspect in the end, its once again the poor consumer who will end up paying one way or the other.
On December 16 2010 the Board of Governors of the Federal Reserve System released for comment a proposed regulation to implement the debit interchange fee and network exclusivity and routing provisions of the Durbin Amendment – Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. For each of the two primary provisions covered by the proposed rule – debit interchange fee regulation and network exclusivity/routing regulation – the board has proposed two alternative regulatory regimes.
Interchange Fee Proposal - all issuers could collect a per-transaction interchange fee up to $0.07 a transaction. Issuers could seek a higher fee, but never more than $0.12 a transaction, based on actual costs. The fee could be no more than the issuer's total allowable costs divided by the total number of debit card transactions during the previous year.
Debit card exclusivity and routing regulation -The proposed rule also includes regulations, as contemplated by the Durbin Amendment, prohibiting contracts, rules or other arrangements under which a debit card can be processed only by a single network (or only by affiliated networks). The Durbin Amendment also prohibits issuers and networks from inhibiting a merchant's ability to route a transaction over any one of the available networks.
The amendment only applies to the high-rolling banks with assets greater than $10 billion. The bill aims to give a competitive advantage to small banks by going after the big guys.
Impact on the industry and the consumers -
Consumers - I have mixed feelings on this one. Initially, I was happy to see regulations that would decrease the cost to merchants which could potentially lead to reduced cost for the consumers. But as I think more about the proposed regs, I think banks/issuers will figure out ways to make up the "lost" revenue through other means. We have already heard Jamie Dimon (JPM Chase) talk about the impact on the underbanked segment in particular and increased fees for checking accounts. Also, I fully expect issuers to levy other charges such as annual fees for debits cards, reduced rewards etc., which in the end will impact the consumers negatively.
Those who opposed the regulation, often cite the example of Australia, which tested similar legislation when the government capped interchange fees. The annual fee in Australia increased by 22 percent for standard cards and 47- 77 percent for rewards cards.
Issuers and Banks - As mentioned above, while it may have short term impact on their debit interchange revenues, they would figure out other ways to skin the cat or pass on the cost to other products and services.
Merchants - I can't imagine how this can be bad for the merchants. It will perhaps benefit the larger merchants disproportionately.
While it remains to be seen if the law gets passed and with what changes. Lobbyists from both sides (issuers and merchants) are working overtime to make their case and I suspect in the end, its once again the poor consumer who will end up paying one way or the other.
Saturday, December 18, 2010
India Gets Its Own Domestic Card Payment System - IndiaPay
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India is following China in creating its own national payments systems.IndiaPay, the country’s first indigenous payment gateway, is set to take on the global card payment systems such as MasterCard and Visa — when it launches in the middle of next year. IndiaPay will charge half of what it costs a merchant to process a Visa/MasterCard transaction and will be primarily targeted towards debit cards. In India, debit cards far outnumber the number of credit cards by almost 10:1 and most Indians prefer it to credit cards.
While it will reduce the margin for bank issuers, merchants are more likely to accept IndiaPay to other card payments because of lower interchange fee. This could in turn push banks to issue IndiaPay cards.
Still, there are several issues that need to be sorted out before IndiaPay gains acceptability. Firstly, point-of-sale terminals, in which banks have made huge investments, are configured for MasterCard and Visa cards.But NPCI is confident that this problem can be solved, as it has the backing of the government.
China had introduced its own domestic system- China UnionPay. It was introduced in 2002, and gives access to over 85,000 ATM counters of 14 major and minor banks across the world.
The potential in the India market is huge. Around 95 per cent of transactions in India are still carried out in cash, and studies suggest under utilisation of debit cards. It remains to be seen whether NPCI is able to execute on this ambitious project but with the backing of the government and large public sector banks, they definitely have a huge advantage over Visa/MasterCard.
India is following China in creating its own national payments systems.IndiaPay, the country’s first indigenous payment gateway, is set to take on the global card payment systems such as MasterCard and Visa — when it launches in the middle of next year. IndiaPay will charge half of what it costs a merchant to process a Visa/MasterCard transaction and will be primarily targeted towards debit cards. In India, debit cards far outnumber the number of credit cards by almost 10:1 and most Indians prefer it to credit cards.
While it will reduce the margin for bank issuers, merchants are more likely to accept IndiaPay to other card payments because of lower interchange fee. This could in turn push banks to issue IndiaPay cards.
Still, there are several issues that need to be sorted out before IndiaPay gains acceptability. Firstly, point-of-sale terminals, in which banks have made huge investments, are configured for MasterCard and Visa cards.But NPCI is confident that this problem can be solved, as it has the backing of the government.
China had introduced its own domestic system- China UnionPay. It was introduced in 2002, and gives access to over 85,000 ATM counters of 14 major and minor banks across the world.
The potential in the India market is huge. Around 95 per cent of transactions in India are still carried out in cash, and studies suggest under utilisation of debit cards. It remains to be seen whether NPCI is able to execute on this ambitious project but with the backing of the government and large public sector banks, they definitely have a huge advantage over Visa/MasterCard.
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