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margin of less than 2 percent. The very largest enterprises,
Those approaching technology from finance such as Walmart and Costco, negotiate directly with the
will be firmly grounded in rules and card brands, and you can pretty well figure they pay what
they want to pay.
regulations, safety and security, resilience
and reliability; those approaching finance Skinner reminded me that in Europe, the rates for credit
from technology will be firmly grounded card interchange are capped. A study by the Kansas City
in innovation and change, adaptability and Federal Reserve found that on average, North American
merchants paid 83 percent more in fees than their
flexibility, obsolescence and upgrade. counterparts in Europe.
‒ Chris Skinner, The Finanser
I asked him how American merchants could lower their
fees for taking credit cards. He responded that a new
payments upstart could roll out a quick response (QR)
change, adaptability and flexibility, obsolescence and code-based payment system, like Alipay and WeChat Pay,
upgrade," he said. What a great quote from Skinner to and link settlement to bank accounts, rather than ride the
summarize the world of fintech. card brand rails. He mentioned the American payments
system is large, fragmented, lacking significant regulation
Rules and regs in the payment processing space, and not likely to change
This makes me wonder whether we need an overhaul of our anytime soon. But a new player with a new settlement
banking rules and regulations. A recent analysis by Matt system could offer an alternative.
Swinehart, a senior counsel at the Treasury Department,
suggests not. He showed that moving a payment from one The next day I saw an article about Kroger Pay, which
party to another can include as many as seven types of could point to where larger enterprises might go. It is a
services, but government oversight is concerned with only QR code-based mobile-payment service. Consumers
two: account services (who has control of the money) and receive additional loyalty points when they use the Kroger
what rules they follow; and settlement services, which rewards debit card.
makes sure funds are properly accounted for when they Solutions for the long term
are transferred from one party to another.
Kroger Pay doesn't lock out the big four card brands, but
Account services can range from bank demand deposit it offers strong incentives to use its own card. It generates
accounts to fintechs like PayPal and Venmo. Funds a one-time QR code in the app that sends payment
typically settle either through the Federal Reserve or The information to the POS system via a scan. The QR code
Clearing House. Fintech must follow the same rules that is scanned, followed by scans of the items to purchase.
brick-and-mortar banks do. For the time being, it seems Merchants choose QR-code technology for their mobile-
nonbanks won't displace a bank-centric payments model. payments services because its integration into the checkout
And for the record, I don't see Amazon opening a bank; process is easier, and it may enable some transactions to
there is no reason for Amazon to do that. sidestep the payment networks.
Less costly alternatives
Skinner stated that MLSs should ask questions, understand
Today ISOs and MLSs sell credit card services, also as much as possible about each merchant's business and
known as merchant services, and are bound not so much focus on an overall solution that doesn't focus only on
by banking rules and regulations as by card brand rules lowering credit card processing rates. You must take a
and regulations. One fundamental reality is that the cost consultative approach. Then merchants will see you are
to the merchant of taking cards, particularly high-value on their side and are sincerely trying to help, and you
rewards cards, is becoming a real concern, and merchants can build a long-term relationships while advising your
are actively seeking alternatives. merchants on new developments of interest
This is evident in the interest in surcharging and cash Thanks to Chris Skinner for taking the time to speak with
discounting. A merchant with card-present transactions me. You can see him again at Money 20/20 2019.
would pay close to a 3 percent effective rate, and some card-
not-present merchants might pay as much as 4 percent, Brandes Elitch, director of partner acquisition for CrossCheck Inc., has
which takes a big bite out of their gross margins. This is been a cash management practitioner for several Fortune 500 compa-
not so important for small-dollar payments, but when the nies, sold cash management services for major banks and served as a
transaction amount is over, say, $500, it gets meaningful. consultant to bankcard acquirers. A certified cash manager and accred-
ited ACH professional, Brandes has a Master's in Business Administration
It is also an issue in businesses with low margins, such from New York University and a Juris Doctor from Santa Clara University.
as grocery stores and gas stations which have margins He can be reached at sbrandese@cross-check.com.
of 1 percent. Even a new car dealer typically has a gross
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