“For their return home, the Greeks dedicate this offering to Athena”. Apple Pay and increased mobile payment fees.

The Blogosphere has been alive with information on mobile payment and Apples introduction of Apple Pay. The flame-out of PayPal Off-line, Google, Amazon, ISIS (or whatever), and MCX (whenever) have the experts writing and talking about how, when and where mobile payment will become common place.

Enter Apple. While Apple may indeed be the first broad based mobile wallet to achieve consumer adoption, Retailers will remember Apple as Odysseus’ and Apple Pay as a wooden horse bearing higher payment fees. New fees may start arriving in the first statements and no doubt merchants will be asking about the tokenization, wallet storage and API fees. According to legend, “after a fruitless 10-year siege, the Greeks constructed a huge wooden horse, and hid a select force of men inside. Once inside the walls of Troy, the Greek force crept out of the horse and opened the gates to allow the Greeks to enter and destroy the city of Troy.” A fruitless siege might be a good way to describe the tug of war between retailers and banks; abetted by the technology, to describe the painful march to mobile payment. Apple brings scale and technology, but it is their Trojan Horse approach to payments fees and merchants opening the doors to Apple Pay seems eerily like the Troy opening it gates.

Apple deserves applause for devising a strategy that hides their transaction costs within the issuer as a share of interchange rather than charging the merchant directly. Herein the lies the “Trojan Horse” and the promise of higher fees in the future. Published reports indicate Apple will be paid 15 basis points by the issuer (Banks). Retailers need to ask themselves, how long before this cost is shifted to the merchant by way of a higher acceptance fees? My guess, about the same time Apple reaches 10 million Apple Pay consumers.

The big unknown is how high will fees go? The answer is as high as possible. Merchants often say there is little competition in the card fee world and therefore it’s a monopolistic business. Apple Pay can only add cost and another partner that needs to earn profit. 20 years ago banks convinced retailers to accept card based payment using low fees, the results are clear. As merchants open the gates and let Apple Pay in, they should hardly be surprised when Apple Pay is earning 100 basis points rather than 15, and it won’t be the issuer paying the bill.

Three emerging trends in payment

Consumer payments will experience accelerated change in 2013. Multiple disruptive and innovative companies, particularly 3^rd party app developers and retailer branded mobile solutions, will enter the market to challenge the incumbents. Traditional payment processing networks and financial institutions will struggle to keep pace with nimble, tech savvy competitors. “Payments incumbents will leverage their market power to battle disruptors. MasterCard’s new fee structure for “staged” digital wallet providers such as Google Wallet, PayPal and Square” are an early shot-across-the-bow in a fight that will set the stage for payments over the next decade. The legacy technology managing the current payment processing network will be unable to keep pace as new POS and cloud based programs enable merchants and consumers to pick winners and losers.  Mobile solutions; coupled with low cost alternative payment, in conjunction with retailer funded rewards, will become more abundant, more accessible, and deliver greater value.

The eco-system is changing. A new “Retailer-Consumer-centric” payments paradigm is emerging. The future of the new paradigm will be shaped by three disruptive digital (POS based combined with IP communication) trends:

◾The POS Payments Cloud:  The last 10 years has brought major change to the POS and communications.  Less than 10 years ago the POS was a relatively limited device and communications were slow and arcane, at least by today’s standards.  The traditional legacy payments processing network relies on processors, associations and financial institutions in conjunction with POS vendors and a “heavy” communications systems like the Hughes satellite network to enable electronic payment. Unlike the consumer and their expectations, change within this eco-system is difficult, time consuming and expensive.  POS vendors are setting the slate to disintermediate the traditional network through the introduction of the “payment cloud”. Today’s POS is a powerful device built with open standards capable of supporting a wide range of payment and loyalty solutions. The internet changed the nature of communication allowing low cost, reliable, fast, and secure connectivity. Emerging payment models leverage the combination of POS capability and the internet to disrupt traditional payment economics. “Merchants have a growing set of payment options that do not adhere to the traditional interchange or processing fee model. Some of these options even deliver additional value above and beyond payment processing. As merchants adopt these new payment methods, their expectations will reset and they will expect lower costs and greater value from incumbent payment service providers. Traditional economic models will not disappear overnight, but it would be a mistake for payment incumbents to dismiss the growing number of unique pricing schemes and the disruptors who are moving aggressively to gain scale”. Watch for the emergence of these POS payment platforms in 2013.

◾Mobile Payment: Mobile payment and digital wallets will change the nature of the relationship between the consumer and the retailer. New technology will enable a robust “dialogue” between the consumer and the retailer during the “purchase cycle” allowing the retailer to engage the consumer before, during and after the transaction.  Technology “will drive adoption by integrating capabilities that remove friction and transform the payments and commerce experience in contextually relevant ways. These wallets will embed capabilities that can create a more convenient commerce experience for consumers and give merchants a growing set of potential benefits — that may provide a distinct competitive advantage — to evaluate and weigh against the additional costs of wallet acceptance.”

◾ACH & Merchant Issued Rewards: The advantage merchants have in mobile payment is two-fold. First, merchant control access to their mobile payment environment, they will decide what forms of payment are available to the consumer. Secondly, rewards are the key driver for consumers as they choose their method of payment and rewards are controlled by the merchant.

 

Low cost alternative payments in conjunction with merchant issued rewards will appeal to a broad base of retailers and consumers. The loyalty industry in the US is significantly more than $10 Billion dollars and growing. Current card acceptance fees are in the two percent range adding up to billions of dollars. Merchants who leverage the combination of these two line items will offer consumers powerful incentives. Clearly, Merchants can have a lot of influence regarding payment choice with this type of spending. “Disruptors are creating better, lower-cost alternative products and services that deliver more value and meet broad-based payment needs.” Retailer services will provide consumers with personal, relevant offers designed to drive a more profitable purchasing experience.  ACH payment will lead the way towards low card acceptance fees. Retailers who recapitalize these fees as consumer rewards will see increased sales and profits.

 

It will take a few years before we see the full force of this disruption. Retailers will be hesitant to make the technology changes necessary to support the new payments paradigm. Some will wait as end-of-life requirements make change inevitable, others will jump in early and gain leverage in their market.

2013 will be an interesting year for the payments market, what changes do you see in your organization?

The MasterCard/Visa settlement; an alternative point of view.

Opportunities are often difficult to recognize and they do not come with their values stamped upon them. It is often hard to distinguish between easy choices and those of opportunity; such may be the case with the retail industry’s reaction to the proposed Visa, MasterCard Settlement. As it stands today the proposed “Brooklyn” settlement has been rejected by nearly all retailer associations like; NACS, SIGMA, NGA as well as multiple retailers including large national and smaller local companies and even Senator Dick Durbin has added his disapproval to the chorus of rejection. It’s fair to say that the proposal is “Dead on Arrival”. Even so, I wonder if by refusing to embrace this settlement an opportunity is being missed.

With so much opposition to the settlement, how is it possible that an opportunity may be missed? The answer lies in the fundamental assertion that retailers can compete for the consumer’s method of payment steering them to low cost payment, rather than relying on legislative price controls or judicial action that seek to control the payments industry. Core to this belief is that there is significant competition in the credit card industry, it just happens to be between banks competing for consumers, rather than between retailers and banks competing for the consumers method of payment. There is nothing unusual about this model, it’s standard platform economics. The more end-users (retailers accepting cards and consumers with cards) on either side of the platform (MC/VISA), the more valuable and hence expensive the platform. This is why banks do not negotiate fees with retailers. Their mission is adding value to the consumer to carry and use their card for payment. The result is richer reward programs that add cost and drive the transaction fees higher. The retailer’s perception is a monopolist market, when in fact, as consumers we all participate in the very same economic activity.

In today’s rapidly evolving payment landscape consumers have many payment options. Surcharging creates an opportunity for the retailer to compete with the associations and promote low cost payment options. The challenge with surcharging is that it forces retailers to compete not just for the consumers purchase, but also for their method of payment and as a result some retailers may choose to use card payment as an economic advantage. Up until the proposed settlement this concept was merely theoretical because the card association rules prohibited the activity. While some retailers had experimented with cash discounts, the concept of charging for credit or debit card use has not been tested. The reason there is no information on surcharging is because it was prohibited by the associations operating rules. The Associations prohibited surcharging because it exposes the real cost of payment to the consumer and therefore allows the consumer to understand that using their card is not free.  This capability provides a powerful new tool for retailers to steer consumer payment choice.

Now armed with the tool needed to expose this cost, retailers are more concerned about the perception and customer services issues than the costs of payment. One retailer was quoted in NACS Online as saying he wants customers “impressed by the quality of products and services they receive” lamenting that surcharges for payment may appear to penalize them for the use of the card saying “it does not make for very good customer service”. This statement tends to suggest that the current costs accepting credit cards is acceptable, a suggestion that tends to explain why the opportunity presented by surcharging may be overlooked.

It’s unlikely that we will learn the answers to these questions in the near future. The industry is committed to seeking significant concessions that go beyond the proposed settlement which means the lawsuit is likely to move forward.  Stay tuned……

New Bank fees set the stage for Merchant Issued Debit and Rewards.

The stage is set for an epic battle between the merchant community and the financial industry to win the consumers method of payment (MOP).  This week, BoA joined the list of financial institutions announcing either fees, or cut backs in consumer rewards programs, for debit card use .  Senator Dick Durbin sounded surprised when he said of BoA’s actions; “It’s overt, unfair” adding that “Banks that try to make up their excess profits off the backs of their customers will finally learn how a competitive market works”. Many in the industry had long predicted that this would be the immediate result of the regulation (see my June 13, 2011 Blog).  Regardless of the merits of the regulation, or the banks reaction to it, one immediate result is that merchants have the opportunity to steer consumers to a lower cost form of payment (debit): the question; will they be able to leverage this opportunity, or will the payments industry adjust their payments offerings steering consumers to unregulated forms of payment with higher fees i.e. credit, pre-paid cards, etc.

The pivotal decision for merchants is how to recapitalize the anticipated saving from swipe reform and use that money as an incentive for consumers to choose a lower cost form of payment.  Many merchants, particularly in the petroleum and grocery industry are already actively competing for method of payment by offering ACH decoupled debit card programs (merchant issued debit) or cash discounts. For these merchants, and vendors offering alternative payments  like PayPal or National Payment Card Association, the Durbin Amendment is living up to expectations providing them with a strong tailwind to the merchant and consumer.

Merchants are understandably cautious as they approach payment.  While technology, investment and ramp time look like the heavy lift, the real challenge is to understand the economics.  Traditionally merchants have relied on the bank and card associations to deliver payments.  During the lead up to regulation one argument was that; “there was no competition for payment”. Merchants’ successfully argued this point, irrespective of the intense competition between banks for consumers. What was missing from the debate is that the reason consumers use one form of payment over another is often rewards. These rewards had been paid by the issuers of the card using interchange fees (as much as 50%), and now with regulation, that funding source has disappeared.  Therefore merchants can provide consumers with the same incentive to use a low cost form of payment by offering merchant issued rewards.

Finally, there is a saying “He who enrolls; controls”. Issuance or enrollment is a critical question for merchants choosing to compete for MOP using rewards. Assuming that the merchant chooses to offer rewards for a specific MOP, which MOP should it be, cash, PayPal, Google, or perhaps a merchant issued debit card.  The smartest strategy might be a flexible approach to payment where rewards are based on the costs associated with the method of payment, regardless of whether the rewards are paid for by the merchant, or a 3^rd party.

Debit or Credit, the role of merchant-issued rewards and the consumer’s choice of method of payment.

On December 16, 2010 the fog began to lift on where Section 1075 of the Durbin Amendment would lead as the Federal Reserve Board issued its proposed interpretation of the legislative language. One question on many peoples mind is how the new regulations will impact consumers. Voices on the banking side seem skeptical that the regulation will have any positive impact for consumers sighting Australian studies where retailer prices appear unchanged as bank fees rose and payment options declined.  On the other side of the argument, the National Retail Federation welcomed proposed regulations saying “a significant reduction in the fees would result in lower costs for merchants and could lead to discounts for their customers.”

NRF Senior Vice President and General Counsel Mallory Duncan said. “The combination of reducing rates and allowing retailers to offer discounts will go a long way toward stopping the current scheme where big banks take a bite out of consumers’ wallets every time they use a debit card.” He goes on to say that the NFR “will work closely with the Fed as these regulations are finalized to ensure that the reduction in fees – and the amount of money retailers can offer customers as a discount – is maximized.” And so it seems that the stage is set for retailers to offers consumers discounts if and when they use a debit card to pay for their purchase.

In a recent article published in PYMNTS, Katherine M. Robison of O’Melveny & Myers LLP says that “while the Board says it understands and appreciates the importance of debit cards to consumers, it is disturbing how little the interests of consumers entered into its justification for the Proposal”.  She goes on to say that “The debit card market is a two-sided one, with merchants who accept debit cards on one side and consumers who use them on the other.” Her point being that in this two-sided market an action that may decrease consumers’ demand for debit (say by making debit transactions less appealing to them) will ultimately decrease the utility of debit to merchants.  Further, if Banks add fees to the checking account or the use of the debit card while eliminating reward programs consumers will also find debit less appealing. She adds “So while lower interchange fees may encourage more merchants to accept debit cards, at that point there may be fewer consumers who want to use them.” Enter the role of merchant issued rewards.

Consumers could benefit from a rewards battle between merchants and banks for their method of payment. On one side will be the issuers of credit cards, on the other will be the retailer and the winner could be consumer as they rack up rewards by choosing either credit or debit. Their choice will be simple, choose to use a bank issued credit card and earn rewards like airline miles, or choose a debit card (either bank or merchant issued) and earn retailer funded rewards. The decision will be based on which offer the consumer finds more attractive? 

Over the last five years a variety of alternative payment providers. Like National Payment Card Association, have brought forth payment technologies like merchant issued debit cards designed to circumvent the traditional payment processing network delivering a lower cost transaction to the retailer. Now with the Fed’s proposed interpretation of the rule, bank issued debit cards will carry similar fees and so the retailers will face an analogous implementation challenge. How does a merchant motivate a consumer to use a lower cost form of payment? Merchant rewards are the obvious answer. And so the question is; will retailers recapitalize the cost difference between a traditional credit card transaction and the new debit fee and use the savings as a reward? And if not, why would the consumer choose to use a debit card rather than a credit card? Retailers will face a variety of challenges leveraging these new fees to their advantage.  Most notably is that the possibility that a debit transaction with merchant funded rewards may actually cost more than the original bank fee for a debit transaction. 

(http://www.linkedin.com/in/peterguidi)

Competitive opportunity in a post Durbin world: richer debit rewards as the unintended consequence of the $10 billion exclusion.

Dozens of articles have been written about the impact of the Durbin Amendment on the payment card industry, with nary a positive comment in the mix. The focus has been on the punitive impact that the legislation will have on both financial institutions and consumers. The consensus has been that banks will lose significant revenue and that consumers will see more bank fees as costs are shifted to make up for lost interchange revenue. This article takes a different approach and looks at the new market opportunity hidden in the bill, the opportunity for smaller financial institutions to launch aggressive debit reward programs fueled by higher interchange fees.

Under Durbin’s “reasonable debit fee requirement,” there is an exemption for banks and credit unions with assets under $10 billion (this includes 99% of all banks and credit unions). This means that Visa and MasterCard can continue to set the same debit interchange rates that they do today for small banks and credit unions.  Those institutions would not lose any interchange revenue that they currently receive; in fact they could receive even higher rates. Many experts writing on Durbin have concluded that this exception will be meaningless because the networks will be unable to accommodate multiple fee structures and as a result, while exempt, interchange fess on those financial institutions will suffer along with their larger brethren.

The argument is that the required costs and effort, such as network IT changes to accommodate multiple interchange fees, make this outcome unlikely. The recognition that business pressure from small banks and credit unions on the networks, Congress or the Fed could leave the networks with little choice but to develop a two tiered fee structure may alter this conclusion. A few weeks back, TCF, an issuer whose business is above the $10 billion exemption, filed a lawsuit stating, “the thousands of banks exempted from the amendment will be free to continue to charge retailers the current debit-card interchange rate and recover all their cost plus a profit. This will result in an irrational competitive disadvantage for banks like TCF that are subject to the new regulations.” It appears from TCF statements that the idea of 7000 smaller financial institutions issuing a new class of richer debit reward cards seems not only plausible, but probable, and a real threat to their business. The focus on the challenges associated with creating a network pricing schema that allows for multiple interchange rates, rather than discussing the market dynamics, is missing the business opportunity.

The reason this will happen is that the payment card industry is a two-sided market. Durbin treats the payment industry like a utility, but this analysis is mistaken. Durbin and its proponents have argued that the payment card industry lacked competition. This falsity, propelled by an active merchant lobby, found resonance in Congress. In reality, the payment card business is a highly competitive marketplace. It just happens that the competition is between financial institutions fighting for a larger share of the consumer market. The result of this competition is higher fees to those wishing access to the market.  Durbin seeks to upset this market, ignoring the two-sided market economics driving consumer demand.

Consumers will move their purchasing to whatever product provides the most incentives. Merchants will accept the business from any large group of consumers, and Durbin does not allow merchants to discriminate by issuer on a network. What this means is that smaller financial institutions will introduce richer debit rewards programs attracting larger shares of consumers who will then shop at retail locations using those cards. Retailers will not turn customers away because payment method would be become a factor in the consumers choice of retailers, something no marketing department will allow.  This is the result of network effects, and they are the unavoidable economic reality driving the industry. The resulting competitive dynamic is in play: issuers will want to try to drive up fees on the merchant side of the market, delivering greater rewards on the consumer side. Consumers will look for low-fee banking services and richer rewards that are supported by these programs. As a result, millions of consumers will gravitate from the 90 or so issuers affected by Durbin to the 7000 who are excluded. This looks like opportunity.

The real question is how long it will take the networks to code the system to handle multiple prices for issuers. I’d be surprised if the work was not already well underway and available not long after the Fed sets its rates. Durbin will have closed the door on the top 90 issuers, essentially putting them at a competitive disadvantage. But in closing that door, the way has been cleared the remaining 7000 financial institutions to develop their debit rewards business. In many ways Durbin did for the network what they could not do themselves; i.e Durbin eliminated the power of the major issuers and opened the market to the smaller financial institutions.

The TCF lawsuit has been both ballyhooed and scoffed at.  No matter the outcome in court, the case will have an impact on the industry. If Durbin passes all of its legal challenges, the irony may be that the consumer will benefit as a result of richer rewards programs from smaller issuers, and merchants will see card acceptance costs rise taking no comfort knowing that they won a battle but lost the war.

Coalition Marketing; The power and opportunity of developing an “alternative currency”

Loyalty marketing in the convenience/petroleum retail business is rapidly evolving.  Looking back five years, today’s landscape is hardly recognizable. The confluence of two major trends, IT advancement and marketing strategies have changed the way retailers allocate resources and measure ROI. At the convergence of these two trends is the loyalty program. What was a simple punch card fraught with liability, is now a complex real-time database capable of tracking and measuring every dollar spent and earned. Today, many smaller retailers have modern POS and Internet services allowing them to launch complex loyalty programs that had previous been available only to the largest most sophisticated retailers.

There are numerous types of loyalty programs, clubs, instant discounts and others. In the c-store space, one of the most significant questions being asked is: what type of loyalty program to launch? The more sophisticated loyalty programs are based on “platform” economics and work to develop networks of consumers and retailers. In the c-store/petroleum space there are two popular programs available; “Coalition and Community”

Recently, the industry has been “a buzz” with news of “Community” loyalty programs linking major oil companies and gargantuan grocery chains together in “cents off per gallon” promotions. In these programs the c-store/petroleum retailers are a “redemption center” for the program. The question is; are “Groceries for Gallons” a good deal for the c-store retailer? The answer requires an understanding of the difference between coalition and community programs. The importance of this distinction is critical.

In a community program, the retailer is a “redemption depot”, storing the reward (gas) while the grocer sells groceries by giving away gas. These programs move a lot of gallons, but how do they motivate the consumer to purchase other products from the c-store?

In a coalition program the c-store is the owner of the alternative currency (points) both “issuing and redeeming” the currency. In a coalition program, the c-store is “selling” points to coalition partners. Each point is sold at a profit. The c-store earns a profit when the point is sold, rather than redeemed.

Coalition programs put the c-store at the center of a powerful marketing program designed to build profit for all members. Coalition programs motivate consumers’ to purchase more products with greater frequency from both the c-store and the coalition members. 

Summed up, in a Community program the c-store retailer is building someone else’s business, with coalition programs the c-store is building their business. The choice seems clear; coalition is the path to growth and profit. (http://www.linkedin.com/in/peterguidi)

“Reasonable and proportional”, is issuance and the cost of reward programs a part of the “incurred payment processing costs”?

Lost in the debate over interchange fees and the Durbin amendment is a focus on how payment card products reach the consumer. One of the key points of the amendment is to mandate that the interchange fees on selected debit transactions be “reasonable and proportional to the cost incurred in processing the transaction” Merchants have taken the position that as the volume of transactions have increased, the economies of scale and overall effectiveness and efficiencies of the payment processing network have improved, and therefore the cost of transaction processing have gone down. The fact that interchange has gone up during this period is used as evidence that system is corrupt and anti-competitive. This point is heard when Senator Durbin says that government needs to “reasonably regulate this system”.

Missing from the debate on interchange and what constitutes the costs incurred in processing a transaction is consumer acquisition. Consumer acquisition costs are incurred in at least two areas; enrollment (consumer application) and rewards (loyalty programs & retention), to say nothing about overhead, like customer service. This week both Citigroup and TD Bank launched new “Debit Rewards” programs. Citigroup launched a 5% debit card cash back promotion, while the TD Bank program offers 1 point for every $1 dollar spent. In both cases, these reward programs are only available to consumers who use signature rather than PIN debit. As a consumer, which program should I choose? These are two highly competitive businesses, each offering me a product and a service. Each has put their best foot forward and is universally accepted. Both have used a different approach; one uses point’s, one utilizes cash back, and the choice is mine. If the Durbin amendment is successful and retailer acceptance is selective, and interchange fees regulated, would the consumer have these same choices?

Merchants involved with loyalty programs understand the costs associated with advertising and marketing to drive enrollment and fund reward programs. Industry sources report that up to 40% of all interchange dollars paid by merchants are used to support payment card loyalty programs. That means, in 2008, consumers may have earned up to 19 billon dollars in consumer rewards; a cost borne by the merchant, but also a cost to the issuer (bank).

The suggestion is that high fees are a result of no competition in the payment card market. In reality, the high fees are a result of intense competition. It just happens, that the competition is between banks (issuers) fighting for the consumers’ business.

(http://www.linkedin.com/in/peterguidi)

Does regulated debit “Swipe Fees” mean the end of cobranded debit card programs?

Retailers choosing “open-loop” or “closed-loop” alternative payment system might want to consider the long term viability of the open-loop business model, particularly in light of their campaign to regulate and lower the associated “swipe fees”. 

Affinity, cobranded credit card programs have opportunities for both the bank and the merchant. While the “no or low fee” in-store use of the cobranded card is a big attraction, Retailers also profit from cobranded credit cards when consumers use the card to make purchases. When a consumer uses a co-branded credit card, the accepting merchant pays the “swipe fee”.  The cobranded merchant earning “swipe fees” is an example of network effects in a two-sided market. In this example, the merchant is leveraging their customers to market a bank product. Organizations that have the marketing to reach their customers will get the response needed to make the program successful. Ironically, much of the success will be a result of the high fees paid by the merchants who pay the “Swipe Fees”. 

Retailers evaluating merchant issued ACH decoupled debit card programs consider the same model while evaluating their choice of “Open”, or “Closed” loop payment systems. The question is can the decoupled debit card generate revenue for the issuing merchant in the same way cobranded credit card products do. Ironically, the answer all depends on the “swipe fee” the 3^rd party merchant pays when the consumer uses the card. The higher the fee, the more successful the program. 

In order for an ACH decoupled debit card to work in an open loop system the card must affiliate with a bank, and a network. Today’s interchange rates for PIN debit are already comparatively low. The challenge for cobranded cards is to offer a level of consumer rewards that will motivate the consumer to use the card. This is the reason that debit rewards programs are offered for signature debit and not pin debit transactions. As Merchants anxiously await the passage of the much ballyhooed Durbin amendment, they might consider its impact on the cobranded card. If “swipe fees” for debit are regulated, (decoupled debit card programs included) there will be no dollars in the program for either the consumer, or the cobranding retailer. If the consumer does not receive rewards to use the card, and the retailer is not earning money from the program, the network effects driving the value of the platform will be eliminated, making the cobranded credit/debit card program obsolete.    (http://www.linkedin.com/in/peterguidi)

The Final Frontier: the death of cash as a payment and the merchant’s role in the battle plan.

MasterCard and Visa have identified the enemy; CASH! They have devised the final battle plan, the pre-paid reloaded card. VISA’ ReadyLink and MasterCard’s various solutions including a Wal-Mart payroll card are the weapons. The objective is clear; destroy paper currency and extend the reach of the platform and resulting fees over the last bastion of disintermediated transactions. The result will tax every dollar earned and spent by consumers.

The plan is cloaked in platitudes like; “serving the under-severed” or making the product “Green”. Like lambs off to the slaughter, Retailers have joined in the strategy with 7-11, Marathon and Blackhawk introducing Visa’s pre-paid reloadable card, ‘ReadyLink” to their customers. 

The core of the plan is to attack the enemy at its source, payroll. The concept is simple; prevent cash from ever reaching the hands of the consumer. The most efficient route to achieve the goal is to assure that consumers never receive cash by loading their payroll on a pre-loaded card, rather than receiving a payroll check. Say good bye to the check cashing business! When consumers load payroll onto a card the platform has captured the cash and will now earn fees on every purchase or payment made using the card; this is a brilliant strategy and is classic example of creating network effects. The growth of mobile payments and the preference of the “E-Generation” for electronic media is the sound of the bells ringing the death tome of cash in the future.

Acting is the work of two people-it’s only possible when you have the complicity. VISA estimates that there are 80 million underserved consumers receiving $1 trillion dollars in annual income that rely on cash for everyday transactions. Retailers will look back at their participation in these programs as a tactical error in the fight against transaction fees.

(http://www.linkedin.com/in/peterguidi)