Getting cash on the web

[Dave Birch] There are plenty of people out there who want to use cash on the web. Not digital cash, or electronic cash or virtual cash but actual cash. (This shows how the variety of e-cash solutions introduced over the years have failed because of execution and implementation, not because of a lack of consumer demand) There are companies how are trying to find ways to help them to do this, such as Click and Buy in the U.K., for example. Similarly in America. Chase Paymentech and Green Dot Corporation have announced an agreement to offer Chase Paymentech-processed merchants an alternative cash payment solution that gives them the ability to accept cash transactions through their existing online and phone interfaces by accepting Green Dot’s MoneyPak as a form of payment. They say that research from McKinsey shows that cash accounts for more than 60 percent of all consumer transactions. So there's plenty to play for. GreenDot run one of the largest retail-based cash acceptance networks in the United States, and MoneyPak would be the first cash-based payment solution available for use by Chase Paymentech’s merchants. Available at more than 40,000 retail outlets nationwide, including Wal-Mart, Walgreens, CVS/Pharmacy, Rite Aid, Radio Shack, Kroger, Ralphs, Food4Less and Fred Meyer, consumers can purchase a MoneyPak for $4.95 (suggested retail price) at any Green Dot retailer location and move that money wherever MoneyPak is accepted as a form of payment or funding. I've never used it, but I assume that they can reload their Money Pak at the same outlets. Choice is a good thing, and I'm sure that consumers having the ability to choose between pre-paid "open" (ie, Visa/MasterCard) payment cards and non-bank alternatives is a thoroughly good thing.

Talking about alternatives, it's worth noting that new cash-replacement pre-paid services (such as the Money Pak), e-billing services and other new entrants continue to add to the possibilities in the world of "alternative" online payment options. These ranks are led by PayPal. In less than a decade it has taken nearly a quarter of the U.S. online payments market (it handled more than $12 billion in payments in the last quarter). While the majority of its processing volume still comes from eBay, non-eBay payments are already 45% of the total and still growing.

Taken together, theese alternatives are nearly a third of online market and the powerful combination of consumer fears about security and consumer laziness are driving them. As everyone's favourite case study, PayPal, demonstrates perfectly. Consumers know that if I they see the PayPal option on a payment page, it means that they have only to enter a password and hit OK and then they're done. No name and address, no going in to the other room to get a card from their wallet, no expiry date or CVV or the rest of it. This is why I use PayPal whenever I see it offered: because I am lazy, and therefor entirely representative of the mainstream consumer base.

I'm not altogether sure whether "alternative" has any real meaning in this context any more. In a couple of years, credit cards will be lucky to get half of a market that they started off with 98% of a decade ago. Broadly speaking, since those heady days when they saw off DigiCash and VisaCash and Cybercoins and goodness knows what else, there has been essentially no innovation whatsoever from the credit card world. Those of us old enough to remember the dead-end of Secure Electronic Transactions (SET) might have thought at the time that some other new initiative would come along and pick up the baton (adding smart card readers to PCs, that sort of thing) but that never materialised. The "band aid" of 3D secure hasn't transformed the space as the scheme perhaps would have hoped. As is generally the case, I think, organisations have a tendency to label fiddling around at the margins of core business as "innovation" and get on with it. This serves tolerably well as a strategy, up until the moment the core business goes away. When the alternatives have more than half of the market, I suppose we'll have to start labeling credit cards as "alternative" instead.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Comments

[Chris White]

I am not sure that will happen so dramatically in the UK. The benefit of using Credit cards is seriously underpinned by the Consumer Credit Act (recently enhanced by the Lord's ruling on Section 75)and I for one am prepared to put up with the hassle, (at least for the time being!).

[Richard Allen]

Chris, good point, but it's only a few of us that understand such benefits. Credit card use is in slow decline (it peaked in 2004 in UK) and the masses prefer debit cards - more than twice as many purchases were on debit card in 2006, and rising.

Yes, credit cards are truly alternative!

[no credit credit card]

Thanks for sharing this post. Really helpful and informative...

[Steve Barbera]

Your comments are very insightful and appreciated. I agree with a previous reply that more consumers today are using debit transactions over credit. Whether this will have an impact on what Paymentech is doing, only time will tell.

[Steve Klebe]

Is an e-wallet really an alternative payment? Is alternative payment defined by anything that isn't a Visa/MC/AMEX/Discover payment? How much of PayPal's volume is funded by credit/debit card? By the way, having been the 3rd employee at CyberCash, all I can say is it was lucky that we had something other than CyberCoin in the portfolio. Oh boy, the stories that I could tell you about the internal debates over that one!! p.s. I got out before the real slide began!

[davebirch]

Hi Steve,

I think it would be interesting to do a piece on the story of Cybercash. I'm very keen to learn from the past! Can you e-mail me, thanks.

[Iang]

It's important to establish a useful model of the structure of the industry; without this model, analysis and prediction is at sea.

With this in mind, there is one particular myth that needs to be explained: The notion that banks can innovate is a controversial claim. I've never seen it, can you cite some examples?

IMHO, most so-called "banking innovations" were simply business models that were taken from another industry, and were most often forced on them by threat of new entrants. E.g., telephone banking came from telephone insurance, if I recall the story correctly. E.g., 2, digital-cash-versus-SET story can be explained by the simple theory of threats-from-new-entrants.

This is not to deprecate, but to understand. Banks make a lot of money by refusing to innovate. If I was a bank, I would not be able to think of a better way to make money than to suppress innovation wherever it is found.

[No Fax Payday Loans-David]

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