Nov 14, 2005

Payment brand commoditization and re-birth cycles

This picture was recently taken in Seoul. Some of these payment brands involve tens of millions of cardholders. All offer exactly the same payment experience. All are accepted by virtually all merchants that accept bankcards. So the trend is for merchants to no longer advertise which cards they accept. They don’t need to. Today, the brands are quickly disappearing. Talk about commoditization. How did these brands get to the point where they are simply taken for granted and are no longer promoted by merchants?

Phase 1 – In the beginning, merchants only accepted a few payment brands. The size of the merchant network was a powerful competitive advantage offered by the first payment brands that provided cardholders a large number of outlets where they could use their cards. Merchants gladly advertised which brands they accepted, and by omission, which brands they didn’t accept.

Phase 2 – Merchants now accept all payment brands, all offering the same payment experience. There is no differentiation and no need for the brands to be advertised in the store.

Phase 3 – So the brands disappear. This is the trend in Korea today and in many other countries. Fewer merchants display payment brands in their stores. The brands need to become relevant again at the moment of payment in order to stand out and avoid being commoditized.

Phase 4 – Re-birth. One or two payment brands offer a unique and different payment experience, creating the need for retailers to once again inform cardholders that the enhanced payment brand is accepted in their store. The size of the merchant network again becomes a competitive advantage that a few payment brands can offer their cardholders, and a fundamental point of differentiation with other brands that are still limited to the old payment experience.

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