This story appears in the January 2009 issue of Cards&Payments
The story is an old one: Merchants are upset at how much they have to dole out to card issuers to accept their payment cards. But what is relatively new is the apparent growing pressure on the major card brands to reduce their interchange rates. That pressure comes not just from Congress but also from emerging, less-costly alternative-payment methods.
This month's cover story by Cards&Payments Associate Editor Kate Fitzgerald explores some of the emerging payment systems that are trying to tap into the merchants' angst.
My personal feeling is that the existing payment card brands–Visa, MasterCard, American Express and Discover–have little to fear, at least for the near future. One reason is that merchants' anger over their cost to accept payment cards may be overrated. Right now, they'll embrace any type of payment as long as they get a sale.
Each day, it seems, another company announces a new payment scheme to challenge the major card brands. However, if a company such as Tempo Payments Inc., which launched as Debitman Card Inc. in 2000, couldn't succeed at it, I'm not sure what could. Not only did the card network's ACH-based payment method promise merchants considerable cost savings from acceptance of its cards, it also provided merchants an opportunity to generate revenue if the Debitman cards they issued were used at other merchants' stores.
Most merchants, the company learned, don't want to be in the payments business.
Tempo's emphasis now is on decoupled debit, which enables banks to issue debit cards tied to other institutions' checking accounts using the ACH system. The future of decoupled debit also is questionable, however. Banks, like merchants, resist change like the plague.
Emerging payment systems created for online payments may have a better shot at succeeding than those designed to change how consumers pay at the point of sale. That is because new online payment systems require fewer infrastructure changes, and persistent training of clerks is unnecessary.
Companies establishing alternative forms of payment face the difficulty not just of securing merchant and consumer support, but also funding hurdles.
Congress might step in to help merchants. But with government funds being used to bail out the parents of some of the nation's largest card issuers, don't expect lawmakers to take away their main source of card revenue through interchange regulation. Doing so would be counterproductive, at least until the economy revives.