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Payments aren't just about payments

By Dave Birch posted Sep 3 2009 at 9:30 AM

[Dave Birch] Speaking at the Cards & Payments Quarterly Thought Leadership seminar, Andy Simmonds of Barclaycard was talking about pan-European acquiring. One of the several excellent and perceptive points he made was that large, pan-European merchants will "take matters into their own hands" unless they get better service from banks. What he meant, I think, was that retailers will either issue their own semi-closed loop payment cards, stickers, watches, hat, badges and whatever else or that they will demand direct access to Visa and MasterCard. Contactless, that well-known Mickey Mouse technology will, I think, have an impact here because it gives retailers and others the ability to move beyond the card format. Let's face it, cards are a bit boring to the average consumer (as are payments, frankly) and so these alternative form factors may have attractions beyond rational product evaluation, if you see what I mean.

If large merchants were to get together to develop their own payment systems based on new technology, then the savings could be substantial -- Payments News directed me to the recent Chicago Fed Letter in which Home Depot complain that interchange costs them more than healthcare -- although of course they will incur costs as well and they may not fully understand just how expensive it is to deliver good customer service around payments (with dispute resolution, fraud, chargeback management and so on).

Now, one of the key new technologies that may be attractive to retailers in this context is contactless. To be brutally honest, the contactless roll-out in the UK is not going as well as might have been hoped. I've seen contactless terminals popping up in places that they will never be used (eg, my dry cleaner) and continue to be infuriated by the lack of terminals in places where they would be useful and used.

“Another problem is that currently, contactless terminals are in the wrong places. Adding the technology where you can already make card payments is great, but contactless needs to be introduced where cash payments are a nuisance ­ – vending machines, for example,” he said.

[From Cashless plans need retailer buy-in - 09 Apr 2009 - Computing]

Would retailers do a better job of introducing a new retail payment system? There's nothing privileged about the roles of banks or retailers: they have access to all of the same technology. Retailers may have a different focus though and for them contactless may be exciting for other reasons.

The retailer, which uses data specialist Dunnhumby to run its Clubcard programme, may also be looking to become the first retailer to test the use of non-contact reader technology, known as Radio Frequency Identification (RFID), currently used in the London Underground Oystercard system.

[From Marketing News: Tesco unveils plan for next generation of loyalty card - Marketing Week]

Perhaps this is an area where banks could make payment products more attractive to retailers, by building on the ease-of-use associated with the new interfaces, and the fun associated with new form factors, to deliver products that integrate loyalty and coupons.

The French retailer Carrefour has announced plans to work Orange, SFR and Bouygues to begin trials of an NFC version of its combined MasterCard and loyalty product "Pass" before the end of this year.

[From Carrefour targets m-payments trials by year-end: CommsUpdate : TeleGeography Research]

I'm sure I'm not the only person thinking along these lines. If we're going to serious about the "war on cash" then payment schemes are going to have to work a lot harder to package up services attractive to retailers, because payments by themselves are really not making much of a dent.

The BRC report shows, in 2008, cash was used for 56 per cent of all transactions, slightly down on the 60 per cent recorded in 2007. In 2008, 33 per cent of spending in retail outlets was with cash, virtually unchanged from the 34 per cent in 2007.

[From British Retail Consortium - News ]

As an aside, I happened to be at a talk given by the MD of one of the UK's largest retailers, and he said that he thought the biggest cost associated with contactless would be staff training, not anything to do with terminals or networks, which I think serves as a useful reminder about the real economics of the transition to the new payments landscape.

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


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I would have thought that the neighborhood dry cleaner is an appropriate merchant for cash displacement. Not for speed of processing a customer, but for cash handling costs and of course convenience.


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