How A Shared Hatred of Visa and MasterCard Benefits Visa and MasterCard
(This post originally appeared on Forbes)
NYSE:VI thought with the introduction of Apple AAPL +0.01% Pay we would finally see the end of the credit card. Now I’m having my doubts. There are too many players fighting with each other and this is causing too much uncertainty. They all want a piece of the processing pie. They all want to defeat Visa V +0.17% and MasterCard MA +0.31%.
Visa and Mastercard together control about 85% of the multi-trillion dollar global credit card processing market volume, according to a 2010 study. Both companies’ processing volume grew by more than 10% in just this past quarter. Many hate this. ““Some people say the merchants and the card brands have a love-hate relationship,” says James Wester, research director for payment strategies at IDC says in this report. “But if you ask the merchants, they’ll say it’s just a hate-hate relationship.” At the most fundamental level, retailers have been fighting to reduce the fees they pay on credit card purchases, typically about 2% per transaction, or some $41 billion in total in 2012, according to one study. They also want to be freed from restrictive terms around accepting various kinds of cards.”
Today, we can sign up for our banks’ online services. We can pay for our coffee usingStarbucks’ mobile app. We can frequent one of the many shops that accept PayPal’s mobile payment service. For a few years now, Google Wallet, which uses Near Field Communications (NFC) technology, has enabled us to pay for a product by simply tapping our Android phone on a receiver connected to the retailer’s point of sale system. Just last week we saw the release of Apple Pay, another NFC based service that pretty much works the same way as Google GOOGL +0.32% Wallet and is included on all iPhones running Apple’s latest operating system. And then over the weekend we learned that Target TGT -0.45%, Best Buy, Sears, Walmart, Rite Aid, CVS and other major retailers have been working on their own mobile payment system, called CurrentC (get it?), otherwise known as MCX, which uses QR code technology.
CurrentC is not just an effort to shut out NFC technology. It’s also an attack on Visa and MasterCard. “…the driving force behind the (CurrentC) effort is to enable the merchants to avoid paying the 2% to 3% credit card transaction fees charged by the likes of Visa and MasterCard.” USA Today reports. “How much do these big retailers dislike paying fees to Visa and MasterCard? Former Walmart CEO Lee Scott is reported to have said, “I don’t know that MCX will succeed, and I don’t care. As long as Visa suffers.””
But Visa won’t suffer. Neither will MasterCard. Not as long as there’s chaos. And there is plenty of chaos.
Because these big box stores where I shop won’t accept NFC-based Apple Pay or Google Wallet. Instead I have to sign up for their separate service and share my bank account information, a not very enticing option in these days of security breaches at larger retailers. I have little motivation to get the Starbucks app – it’s just as easy to swipe a card. I’m a fan of PayPal and use their service online but not enough retailers have signed up around the country to entice me to commit to that yet either. It’s a fragmented, disjointed landscape for the consumer.
And it’s even worse if you’re a small business or retailer. What do you do in this environment? You wait, of course. You don’t invest in NFC or QR or partner with PayPal or your bank. You don’t know what will be most popular with your customers. You don’t have the time or the money to waste figuring this out. You’re not in the business of gambling on which mobile payment service will be the winner. You will do something only when your customers start demanding a particular way to pay. But for now, you’ll just keep accepting credit cards and cash. Just like you’ve been doing.
The solution is simple right? The major players sit down and agree on one mobile payments platform. Some will have to write off prior investments they’ve made. Others will have to invest a little more. Once a common platform is determined, they can compete on added features and benefits. In the long run, everyone profits: retailers, consumers, technology and processing companies. All of them will inevitably have to make peace with Visa and MasterCard.
Ultimately this is going to happen. But for now, you and I will still need to carry around our credit card and some cash for the foreseeable future so that we can pay the dry cleaner, auto mechanic, pizza shop, convenience store and everyone else, rather than going through the hassle of signing up for all these competing services. Just like we’ve been doing.
No matter. We all know who is benefiting the most from this mobile payment chaos. You guessed it: Visa and MasterCard.