Feb 22, 2006

Contactless, a response to interchange litigation

The cover story in last month’s issue of Transaction Trends, a magazine published by the Electronic Transactions Association, tells how Visa and MasterCard are reinventing themselves in response to costly interchange lawsuits and intensifying competition (see “An Uphill Battle”).

The current market conditions leave the card associations little choice but to reinvent themselves in order to remain relevant. Both associations are changing their board structures to strengthen non-bank voices, with MasterCard even preparing an IPO.

According to Transaction Trends, the associations are also focusing more on developing products which generate value to merchants, like contactless. “The card associations see contactless solutions as a way to hold the line with small-ticket, brick and mortar merchants by providing added value, which in turn, validates interchange.”

Merchants clearly don’t see enough value in payment cards to justify their cost. To avoid litigation, banks need to re-invent the payment card product into something which offers far more benefits to retailers, and which retailers would be happy to pay for. Contactless is one step in this direction. It is a good step. But the problem has become too big for little incremental benefits to do much good. As the associations begin to focus more on merchant pains, they will come up with other payment solutions which potentially solve much bigger problems for a much larger number of merchants. That’s the only viable long term way to deal with interchange litigation. But it will have a very major impact on the corporate cultures of both associations.

Related posts:
Protecting interchange fees: what alternatives to litigation?
Key success factor #4: Show merchants how your payment brand can help solve major problems
A new and fresh advertising theme: the payment experience

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