I was going to do a short summary with extracts of key areas which I personally found interesting (albeit from my own, very biased point of view). But then I found that there were too many things that were interesting. So I’ll do several posts.
The first pages set the tone by providing an interchange cost-benefit analysis from the merchant’s perspective. Levitin describes how the overall cost of accepting cards has increased to the point of becoming the fastest growing cost of doing business for many merchants, but without any corresponding increase in benefits.
“When credit cards first became widely available a quarter-century ago, they provided merchants a significant boon by enabling greater spending by masses of creditconstrained consumers. Now, however, credit card growth is fueled by affluent, non-creditconstrained consumers, seeking rewards points and frequent flier miles, rather than by creditconstrained consumers, seeking the benefits of paying later for goods and services received now. As a result, the marginal net benefit of card acceptance is declining, and at some point it may even become negative. As card acceptance costs rise and marginal benefits decline, merchants are becoming increasingly restless with bank control over payment systems.”
Welcome has been saying for years that payment cards must provide more benefits to merchants. Banks thought our vision was interesting, but they were still primarily interested in their own loyalty programs for points, cash back and frequent flier miles which build loyalty and usage for the bank’s cards without providing any real benefit to merchants. Banks are beginning to understand that the old mindset is dangerous, thanks to a growing number of papers like this one. And our point of view is becoming more mainstream than in the past. Welcome's vision is now better described as "unique" rather than "quirky".