Jun 24, 2007

National debit scheme fights for its life – is this a preview of SEPA consequences?

Singapore’s NETS debit card scheme issued a response to attacks by the local consumer association a few days ago, explaining why the scheme was forced to adopt the interchange fee model used by Visa and MasterCard. The words used in this press release are quite poignant. Is this the future facing Europe’s national debit card schemes?

“The market has changed considerably in the past 22 years and NETS has to respond to these changes, particularly in the advent of growing competition from international debit cards that provide a more attractive revenue stream to card issuers."

"The reality is that if NETS wants to ensure its future presence, it has no choice but to bite the bullet and re-align its business model to continue operating in a sustainable manner. Should NETS chooses the option of inaction, Singapore retailers would ultimately be left with only a debit payment service run entirely by international card schemes which charge higher rates.

"The Exercise would let NETS continue its mission for the past 22 years – as a homegrown company committed to offering the most competitive cashless payment services to Singapore retailers.”

From NETS perspective, this appears to be a cost management issue, with card issuers demanding more revenue from the scheme, in line with what they would get from Visa and MasterCard. NETS is simply passing the cost on to merchants.

Unfortunately, the payment industry has focused so heavily on costs for so long that it is hard for many people to shift focus and provide substantial new value to merchants. This is also very true for Europe's national debit card monopolies, who could soon be struggling under similar market pressures as NETS.

See the full press release here, and my prior post on the subject here.


Dolphin said...

Hi Aneace,

I constantly check your blog for any of your thought provoking write-ups.

On this topic, I am a bit perplexed why merchants are willing to absorb the 2.5% (or whatever it is) merchant discount rate but are not willing to accept Nets' increased interchange? Granted, it is a huge increase. But the impact to the merchants' bottomline would be the same if credit cards were used more frequently by its customers - which is possible if customers realize the benefits of credit cards and card issuers do more promotion to encourage use of credit cards.

My point is that merchants can afford the higher interchange fee - albeit not liking it - as with anybody who just got hit with fourfould increase in prices.

Also it would be interesting to study the case of interchange in Indonesia where BCA dominates the payment landscape. BCA doesn't charge interchange/merchant discount rate (MDR) to its large merchants for debit card transactions - though for credit cards it still charges MDR. BCA's benefit comes from the fund/and other banking businesses that come through from the merchant to BCA. So, it's using its acquiring business as a loss-leader. Yet, interestingly, many of those merchants still accept other debit card terminals as well - even though they carry high debit MDR.


Aneace Haddad said...

Hi Dolphin. I'm going to do a longer post on your comment about NETS, but the short story is that there are still lots of merchants that accept only cash or NETS (the 7 Eleven across the street from my apartment is just one example).

I am not familiar with BCA. Can you give me more information? If you like, you can contact me by e-mail at a.haddad@welcome-rt.com