BOSTON — To expand in the business-to-business payments market, credit card issuers may have to abandon the interchange structure, an analyst has predicted.
Theodore Iacobuzio, a managing director with TowerGroup Inc., an independent research firm owned by MasterCard Inc., said that many businesses are seeking electronic payment alternatives to checks but that cards may be too expensive.
"A new business model could be emerging," he said at a conference his company hosted last week.
Instead of interchange revenue, he said that banks use interest from corporate customers' other banking services, such as cash management. "All the other stuff that has interest attached may replace interchange as a business-model driver for corporate cards."
"The bank card transaction model is based on assumed anonymity between the merchant and the customer," he said. "A corporate payment may not need interchange because in a corporate payment there may be knowledge of who is who."
Some competitive factors work against interchange as well, he said, especially from the automated clearing house networks.
"Both the ACH and the card networks are presenting themselves" as low-cost alternatives to checks, he said, and ACH wins out on cost.