Jun 18, 2008

Interchange is now as big as biotech

$64 billion. That’s how much interchange revenue banks earned globally in 2006. Comparable to the total combined revenues of all publicly traded biotech companies worldwide. When it comes to profitability, the comparison doesn't work so well. Biotech racked up a global net loss of $2.7 billion in 2007 while interchange income appears to be very profitable, although it’s hard to say. Better to issue premium cards than search for new biotech cures.

Here are a few other figures: interchange is roughly double the size of the microprocessor industry ($35 billion worldwide), more than double the size of the electronic game industry ($28 billion worldwide), Hollywood box office sales ($23 billion), the music industry ($30 to $35 billion) and even venture capital investments ($31 billion).

There are lots of experts, analysts, journalists, consultants, etc. focused on all aspects of these industries, on new products, growth strategies, mergers and acquisitions, threats and opportunities. Why is there no similar focus on the interchange industry? Why are there no payment experts debating the impact of new payment products on interchange pricing and on merchants' desire to pay to accept plastic? Or how about growth strategies in the interchange industry? Who is actively and openly working on growing interchange in a sustainable fashion? I would love to see a major international banking conference dedicated to that subject. US biotech companies alone spent $16 billion on R&D in 2006. Did anyone see even a few billion spent on protecting and growing the interchange industry last year?

Can an industry the size of biotech just dry up and go away?

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