Friday, June 08, 2007

Competition for Credit Card Companies

Some quotes off the Internet the past month:

"A group of Europe's largest banks are holding secret discussions to establish a pan-European debit card scheme that would challenge those operated by MasterCard and Visa" (Read the article on the 11th May 2007)

and

"India's banks are considering setting up a domestic card payment settlement system to rival the networks operated by Visa and MasterCard" (article)

Why would banks want to do this? Surely, as the only shareholders in MasterCard and Visa they benefit primarily because one standard exists and that allows them to transact with each other in many different countries and with as many currencies - totally seamlessly. Just doesn't make sense. I can think of only two reasons why this should even be considered:

The first is the cost associated with a transaction as it is passed through the Credit Card settlement network. This is a function of the number of parties that must benefit from the transaction as well as some of the complexities regarding dispute resolution and fraud management. However, I am sure that if the different parties put their mind to it and make some compromises this should never be a problem.

The other reason can be because the organisations behind credit card transactions have started to morph into companies that are starting to compete with the banks. They may even be perceived as potential competitors and threats. In the Lafferty article the following words are being used: "....they do not have to rely upon foreign states or organisations for the provision of critical infrastructure services, including payments." (foreign organisations?)

It is a fact that credit card organisations do not play a neutral role in facilitating mobile payments. (One more than the other). These organisations are often prescriptive on designs and architecture and sometimes even develop competing product to what banks should be doing. It could be worthwhile to define the ideal role of credit card organisations in the world of mobile payments.

6 comments:

Citizen Dave said...

"Surely, as the only shareholders in MasterCard and Visa "

MasterCard has already had its IPO and Visa (except for Visa Europe) is due to IPO next year.

Hannes@Home said...

Thanks for reading my blog. You are right, sorry for the inaccuracy - shows my age... I am still iving in the past. That does change the argument and would probably explain some of the bank's sentiments?

ChrisL said...

The whole bank vs payment service is worth investigating, so thanks for the article, Hannes. I'm hopeful that as a result of the convergence in this area, we'll get something favourable fee-wise to the merchants.

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shannon said...

i've heard that, if it isn't happening now, that it will in the near future, that customers won't even need a visa or mastercard for mobile credit card processing, that charges can be routed directly to your monthly mobile bill.

which is neat, but doesn't seem secure...

Hannes@Home said...

Charging payments to your mobile phone account will never happen ina big way. Payment for ringtones and other content, yes, but for anything more... not a chance. Problems with risk, cost and logistics is justr to big to overcome.