Apr 28, 2006

Get merchants to lust after credit and debit card acceptance!

Business Week describes Steve Jobs’ first day back on the job at Apple, in July 1997, after being fired 12 years earlier, and his first meeting with top management. "O.K., tell me what's wrong with this place," Jobs said. "It's the products! The products SUCK! There's no sex in them anymore!" According to Business Week, Jobs “has created products that consumers lust after”, causing Apple shares to soar from $7 a share three years ago to $74.

It would be a major understatement to say that merchants don’t lust after credit and debit card acceptance. This may be the biggest problem facing card issuers today. Merchants feel they have no choice but to accept credit and debit cards. It is why merchants and regulators are fighting interchange fees so fiercely. Best case scenario for US banks: interchange revenue worth at least $25 billion per year gets cut, maybe by a half (in comparison, ATM/debit card fraud, another major problem, is estimated to cost US banks $3 billion). Worst case scenario: merchants win their antitrust lawsuit, banks lose $100 billion, interchange revenue is eliminated and banks have to pay merchants to accept cards.

Turning credit and debit card acceptance into something that merchants lust after would solve many problems. In addition to helping to protect interchange revenue, it would cause merchants to actively encourage their customers to use cards rather than cash or cheques. This would help banks avoid low card activation and usage, and help move cash to plastic much faster.

The last time that merchants lusted after payment card acceptance was right after electronic dialup terminals and magnetic stripe cards were introduced, making it possible to accept cards without tying up a clerk for a few minutes on the phone waiting for an authorization. That was 1979, and possibly the last major innovation in payment cards. Everybody already knows how card acceptance and usage exploded over the following years. Nobody can seriously claim that merchants have lusted after card acceptance since then.

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