May 25, 2006

Old, boring cards have trouble competing side by side with new generation cards

Customers walking into this restaurant in Karachi can’t miss these signs for promotions from two banks, UBL and Standard Chartered. Welcome’s bank customer, UBL, put their sign up first and Standard Chartered followed later.

UBL cardholders get free soft drinks on their first visit, a free starter on their second visit and a free main dish on their third visit. Standard Chartered cardholders only get garlic bread and fries. And that promotion only lasts a couple weeks, while the promotion on UBL cards is on all the time.

Old, traditional card payment platforms are unable to use historical transaction data at the moment of payment, so Standard Chartered can’t offer anything more than the same boring promotion over and over again. UBL’s payment system offers the merchant a tool to target high value offers, like a free meal, only to customers who have been to the restaurant three times.

From the merchant’s perspective, since the old-fashioned Standard Chartered card platform offers much less value than new generation UBL cards, why should interchange be the same? If cards are not offering merchants anything more than they did twenty years ago, why shouldn’t interchange go down? On the other hand, banks that make their cards much more valuable to merchants should be rewarded with the level of interchange they are accustomed to.

I could not have orchestrated this picture any better if I tried.

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