In business as in combat, going up against a strong, entrenched foe rarely pays off. Successful attacks are more likely to originate from unexpected and weaker defensive angles or from sources that are not recognized as threats until it is too late.
The two established leaders in the payment processing sector are Mastercard kredittkort and Visa. The two mass-market card brands have progressively expanded their take as the intermediaries in transactions worth hundreds of billions of dollars every year because they have a tight hold on customers’ wallets and retailers’ card machines. American Express established a little foothold at the top of the market, but Discover Financial Group’s competing processing network has scarcely made a dent despite decades of backing from wealthy parents, even though it typically provides a better price.
The Mastercard kredittkort-Visa Maginot Line is a formidable barrier, but AT&T Inc. and Verizon Wireless have emerged as prospective partners that can support Discover. The two wireless service providers are developing a strategy that would let Americans use their smartphones to make payments. (1) According to rumors, T-Mobile also wants to collaborate with Discover and Barclays PLC.
The idea of making payments with a mobile device is not new. According to a recent survey by Gartner Research, this year, mobile payments will be used by more than 108 million people worldwide. But up until now, American interest hasn’t been really strong. Mobile payments are readily luring customers who previously relied on cash in the developing world, where many people lack bank accounts or credit cards. (2) Companies who want to offer mobile payments must, however, compete with the strong credit card industry in the United States.
Credit card businesses have profited as plastic has replaced paper in this nation. More than half of consumer purchases in the United States now include cards or electronic payments, according to the Nilsson Report, reported by Bloomberg. Only 36% of purchases in 2003 were made using this method. Due to all of this swiping, Visa’s yearly operating income increased by six times to $3.54 billion last year from fiscal 2005. To $2.27 billion, MasterCard’s annual revenue has more than multiplied by five.
The majority of the revenues come from merchants that pay to use the companies’ services for payment processing. For instance, anytime we accept a payment by Visa or MasterCard, our little firm gets charged a typical “discount” fee of about 2.5 percent. On corporate cards, loyalty cards, and overseas cards, we additionally pay “interchange” fees, which can be an additional 2 to 3 percent.
The card firms are not overly burdened by our business. We typically conduct a very modest number of expensive transactions per year. In 18 years, we have not had a single chargeback or fraud claim. Businesses that are unable to provide these benefits to card firms pay considerably more than we do.
In most cases, businesses increase their pricing in order to pass these expenses on to customers. Although they are unaware that they are indirectly paying for the privilege, they happily swipe away.