So what is an alternative payment? Do e-wallets qualify? There are various projections out there that say "alternative payments" will represent n% of all ecommerce payments by "n" date by such well respected research firms such as Javelin Strategy. Unless we define the term, these projections can easily be mis-understood and overstate the actual change underway. Some seem to believe that any payment where the consumer does not directly enter their credit/debit card number into the check-out form qualifies as an "alternative payment". In my opinion, Google Checkout, for example, is not an alternative payment. PayPal transactions that are funded by a Credit Card are not an "alternative payment". BillMeLater and eBillMe are clearly alternative payment. Taking Google Checkout and Credit/Debit card funded PayPal transactions out of the projections would reduce them dramatically.
What do you think?
Saturday, April 18, 2009
Thursday, April 9, 2009
What is a micropayment?
The answer - it depends on who you ask.
My definition is - a payment of $1.00 or less.
I would like to propose a new term (just what we need, right!) - Minipayment.
What is a minipayment? My definition is - a payment of between $1.01 and $5.00.
Then we would have a plain old "payment" which I would define as anything above $5.00.
There has been a lot of attempts to solve the micropayment problem. They go by the names; Digicash, CyberCash, MagnaCash, PepperCoin (all dead and gone) and the latest incarnations; SpareChange, PayByCash, etc. PayPal has toyed around in this area as well but without much success.
The problem is that if the consumer pays by Credit or Signature Debit (see earlier post), the cost of the transaction includes a flat fee of ~.20-.30 plus some % of ~2%. On a $5 transaction run through PayPal's (& now Google Checkout's) standard pricing, the fee works out to be 9%.
The "solution" has been to have the customer fund a larger amount, say $20 (works out to a 4.5% fee if a typical SMB merchant is using PayPal/Google Checkout). The problem with this are; a) the % of consumers willing to commit that larger amount on the hope that they will use it at one or more merchants that support it, b) the economics for the provider and the merchant of providing customer service around these very low value payments and c) for the credit card companies, the % of these transactions that result in disputes at a very high cost. Other solutions are individual game currency, pre-paid cards, mobile payments but each of these have a variety of issues whether it is; utility, accessibility, cost, fraud, etc.
I do not have a magic bullet for this one, I know too much about how all this works and therefore the challenges. I am always intrigued to observe the volume of noise on this issue and the amount of VC money that finds it way to the latest attempt.
p.s. The biggest challenge is not any particular technical issue. If the credit card companies or PayPal wanted to offer a viable solution, they could. It is the Incumbent's Dilemma in spades, however, since in order to price a micropayment service in the realm of what the merchant would desire, it would undermine the pricing models for the higher value payments since the fact is, it costs about the same to process a $1.00 transaction as a $100.00 transaction and at the volumes the big guys are processing, that incremental cost for the next transaction is pretty low. The other guys that are trying to solve it are faced with all the chicken & egg start-up costs whereas the incumbents are already at scale.
Feeback welcome!
My definition is - a payment of $1.00 or less.
I would like to propose a new term (just what we need, right!) - Minipayment.
What is a minipayment? My definition is - a payment of between $1.01 and $5.00.
Then we would have a plain old "payment" which I would define as anything above $5.00.
There has been a lot of attempts to solve the micropayment problem. They go by the names; Digicash, CyberCash, MagnaCash, PepperCoin (all dead and gone) and the latest incarnations; SpareChange, PayByCash, etc. PayPal has toyed around in this area as well but without much success.
The problem is that if the consumer pays by Credit or Signature Debit (see earlier post), the cost of the transaction includes a flat fee of ~.20-.30 plus some % of ~2%. On a $5 transaction run through PayPal's (& now Google Checkout's) standard pricing, the fee works out to be 9%.
The "solution" has been to have the customer fund a larger amount, say $20 (works out to a 4.5% fee if a typical SMB merchant is using PayPal/Google Checkout). The problem with this are; a) the % of consumers willing to commit that larger amount on the hope that they will use it at one or more merchants that support it, b) the economics for the provider and the merchant of providing customer service around these very low value payments and c) for the credit card companies, the % of these transactions that result in disputes at a very high cost. Other solutions are individual game currency, pre-paid cards, mobile payments but each of these have a variety of issues whether it is; utility, accessibility, cost, fraud, etc.
I do not have a magic bullet for this one, I know too much about how all this works and therefore the challenges. I am always intrigued to observe the volume of noise on this issue and the amount of VC money that finds it way to the latest attempt.
p.s. The biggest challenge is not any particular technical issue. If the credit card companies or PayPal wanted to offer a viable solution, they could. It is the Incumbent's Dilemma in spades, however, since in order to price a micropayment service in the realm of what the merchant would desire, it would undermine the pricing models for the higher value payments since the fact is, it costs about the same to process a $1.00 transaction as a $100.00 transaction and at the volumes the big guys are processing, that incremental cost for the next transaction is pretty low. The other guys that are trying to solve it are faced with all the chicken & egg start-up costs whereas the incumbents are already at scale.
Feeback welcome!
Friday, March 13, 2009
Merchant Risk Council Conference
Just returned from Vegas where I attended the MRC conference. For those of you unfamiliar the MRC is an organization that brings together ecommerce merchants, card brands, alternative payment providers, payment service providers and other peripheral technology providers to network and educate. Of course, this was Vegas, so the rest of what went on I cannot discuss. The sessions provided adequate content but the real serious discussions were happenning in the hallways and byways. One of the interesting challenges is that very often the merchant side is represented by newbies who need 101 level orientation and so a significant amount of time and energy during sessions has to be spent on the very basics. Another issue that is always present is the hesitancy associated with revealing too much to competitors. Lastly, there is the fear of saying something that might alienate one of the Big Brothers in the room by digging into one of those many slippery slope issues that are so prevelent in this realm. If you were at the MRC and have any thoughts to share about what you picked up (hopefully nothing that antibiotics cannot cure) or perhaps topics that were missing, please let me know.
p.s. It was great that numerous people came up to me at the conference and commented that they have read and enjoyed the blog!
p.s. It was great that numerous people came up to me at the conference and commented that they have read and enjoyed the blog!
Friday, February 20, 2009
PINless Debit is not synonymous with Signature Debit
Signature Debit is used without a PIN but it is not PINless Debit. This is just one of the many perplexing realities of the payment world. You really have to leave your common sense at the door. It is true that you would not be using a physical signature to "sign" a PINless Debit transaction but you would be using your electronic "signature".
PINless Debit is a type of transaction where a consumer can pay a very limited type of bills such as a Utility bill, mortgage payments, etc. with the same card they otherwise would use at the ATM with a PIN or at the POS with a signature or a PIN or online as a signature debit. PINless Debit transactions are processed by the ATM networks such as Star, NYCE, Exchange, etc. The card may have a Visa or MasterCard logo on it but for these unique transaction types and with certain merchants who have been individually qualified by each ATM network, they would be processed as PINless debit. Interlink/PLUS and Maestro/Cirrus which are the Visa/MC PIN based POS/ATM networks do not support PINless Debit. These transactions are priced with a % fee but it usually caps out at around $.50.
Signature debit (used to be referred to as check cards) is where a debit card that also has a Visa or MC logo on it can be used for any retail or online purchase and when it shows up at the bank the funds are debited from the consumer’s checking (DDA) account. These transactions are priced like all Visa/MC transactions under Interchange albeit slightly less than credit card interchange but there isn’t a cap on the fee.
As an example, I have a Wells Fargo card that doubles as my ATM card and as my signature debit card. Depending on where I use it and which button I press on the POS terminal the transaction travels over a different processing network and the merchant would pay a different fee. If I were to use it at my mortgage company online, (and they had set up all the right back end systems and agreements), the transaction would run across the STAR ATM network rails. If I use it at a BofA ATM and enter my PIN, it likely would travel across the PLUS or STAR networks. If I use it at the POS and enter my PIN, it would travel across the Interlink network (owned and operated by Visa) and if I use it online to shop at AMAZON, it would travel across the Visa network.
Have I completely confused you? I have gone back and read this post over a few times and even I am confused. Oh well!
PINless Debit is a type of transaction where a consumer can pay a very limited type of bills such as a Utility bill, mortgage payments, etc. with the same card they otherwise would use at the ATM with a PIN or at the POS with a signature or a PIN or online as a signature debit. PINless Debit transactions are processed by the ATM networks such as Star, NYCE, Exchange, etc. The card may have a Visa or MasterCard logo on it but for these unique transaction types and with certain merchants who have been individually qualified by each ATM network, they would be processed as PINless debit. Interlink/PLUS and Maestro/Cirrus which are the Visa/MC PIN based POS/ATM networks do not support PINless Debit. These transactions are priced with a % fee but it usually caps out at around $.50.
Signature debit (used to be referred to as check cards) is where a debit card that also has a Visa or MC logo on it can be used for any retail or online purchase and when it shows up at the bank the funds are debited from the consumer’s checking (DDA) account. These transactions are priced like all Visa/MC transactions under Interchange albeit slightly less than credit card interchange but there isn’t a cap on the fee.
As an example, I have a Wells Fargo card that doubles as my ATM card and as my signature debit card. Depending on where I use it and which button I press on the POS terminal the transaction travels over a different processing network and the merchant would pay a different fee. If I were to use it at my mortgage company online, (and they had set up all the right back end systems and agreements), the transaction would run across the STAR ATM network rails. If I use it at a BofA ATM and enter my PIN, it likely would travel across the PLUS or STAR networks. If I use it at the POS and enter my PIN, it would travel across the Interlink network (owned and operated by Visa) and if I use it online to shop at AMAZON, it would travel across the Visa network.
Have I completely confused you? I have gone back and read this post over a few times and even I am confused. Oh well!
Friday, February 13, 2009
Not Exactly!!!
There seems to be a new alternative payment solution showing up on the scene every day. This week, two new ones appeared. Mazooma and Noca. Where do they get these names from? I visited both sites and right off the bat there is a huge difference here. It is obvious that Mazooma is the more sophisticated company, at least from a marketing perspective. Noca's messaging is clearly techy orientated. What is "not exactly"? I have to pick on Mazooma's messaging. They claim you are paying in "real time". Well, need I say more? Awhile back I tried and commented on another player in this realm, eBillMe. While I was impressed, I experienced the downside of these solutions compared to paying with a Credit or Check card. The merchant is not going to release the merchandise until they actually get the money which is probably going to take 2-4 days. I bought something from Buy.com and since I was paying with eBillMe, the merchant put my order into a pending status whereas if I had paid with a Credit or Check card, they would have immediately released it for shipment. As it turned out, therefore, they ran out by the time they got the funds (or notified confidently enough that the funds were on the way) and I had to wait over a week for them to replenish their stock and ship the item.
The bigger question for all of these types of solutions is will the customer bite? Will they want to enroll and manage yet another account with another username/password for a service they will likely only be able to use at smaller merchants and therefore it has minimal utility.
Final note, I enrolled in Mazooma and of course, their email confirmation back to me got trapped by my ATT/Yahoo webmail SPAM filter. Surprised?
The bigger question for all of these types of solutions is will the customer bite? Will they want to enroll and manage yet another account with another username/password for a service they will likely only be able to use at smaller merchants and therefore it has minimal utility.
Final note, I enrolled in Mazooma and of course, their email confirmation back to me got trapped by my ATT/Yahoo webmail SPAM filter. Surprised?
Friday, February 6, 2009
Visa/MasterCard Results & the Economy
It never ceases to amaze me how the news media continues to confuse the role of Visa and MasterCard and the Issuers. The other morning on CNBC, the reporter was talking about the great results that both companies had posted "in spite of the economy". As we all know, Visa/MasterCard are in the transaction processing business, not the lending business. The good news for those of us in the electronic payments world is that regardless of the state of the economy, the continued shift from cash and checks to credit and debit cards carrys on. And, while there are things that could be done to make the processing of electronic payments even more efficient (and fair, secure, etc.) for all parties, there is little doubt in my mind that this evolution to electronic payments is a good thing.
It is not what you say, it is how you say it!
When it comes to dealing with Chargebacks, one of the greyest (surely not the greatest) areas of the world of payment processing, the devil is clearly in the details. Consumers, who wish to game the system, have learned what to say in order to get a refund from a merchant or chargeback handled by their issuer when they may or may not really be deserving of one. Issuers have learned that if they code chargebacks a certain way, many merchants will simply not bother fighting them. The disparity in the rules and processes between the various issuers is enough to make your head spin. During these types of economic times, the tension between the various parties in this wonderful 4 Party system have a tendency to become even more tight as everyone is looking for any margin of victory (deserved or not). Therefore, maybe now is not the time to address all of this confusion and disparity, but if the full potential of the electronification of payment is going to be achieved, this realm will have to be advanced in the not too distant future. Welcome your thoughts on how this situation can be improved upon.
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