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Table of Contents

Lead Story

2015 in review

Patti Murphy

News

Industry Update

Target to pay $39 million to MasterCard issuers

FTC kills telemarketers' remotely created payments

Mobile tech drives global holiday spend

Black Friday lives on amid expanding alternatives

Features

Redesigning financial services for Millennials: A conversation with Max Levchin, co-founder and CEO of Affirm

U.S. EMV - outside looking in

China on mobile fast track

Views

Tools of the tradeoff

Dale S. Laszig
DSL Direct LLC

Will new payment schemes bump card brands aside?

Ken Musante
Eureka Payments LLC

Education

Street SmartsSM:
What does the crystal ball say for 2016? - Part 1

Jeffrey I. Shavitz
TrafficJamming LLC

EMV liability shift: Who's liable for what - and when?

Allen Friedman
Ingenico Group

Now more than ever, managing e-commerce risk matters

Kirsty Tull
BillPro

Company Profile

Benseron Information Technologies Inc.

New Products

All-in-one Android POS for small business

Sircle POS
Sircle POS

Versatile mPOS solution for all

Infinea
Infinite Peripherals Inc.

Inspiration

Realize your potential

Departments

Readers Speak

Letter from the editors

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

December 28, 2015  •  Issue 15:12:02

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Will new payment schemes bump card brands aside?

By Ken Musante

Two recent developments are noteworthy because they lack any participation from the card networks. First, on Oct. 26, 2015, Early Warning Services LLC revealed it will acquire clearXchange, creating a bank-owned, real-time payments network. Second, JPMorgan Chase & Co. partnered with Merchant Customer Exchange (MCX) to enable Chase Pay in CurrentC wallet and allow Chase Pay to be accepted at CurrentC merchants. Historically, revolutionizing payments has been as profitable as producing the DeLorean automobile. Bling Nation, Revolution Money, Debit Man/Tempo Payments, Pay by Touch and Isis/Softcard were all ahead of their time. Countless lesser-known companies have met similar fates. The reasons they didn't gain traction are numerous, including:

However, it's worth considering why this time might be different and become a tipping point for new payment schemes. First Annapolis Consulting did an excellent job summarizing the actions of both Early Warning and JPMorgan. The firm's analysts provided the following overview for Early Warning's acquisition:

"Under an agreement announced October 26th, Early Warning will acquire clearXchange, creating a bank-owned real-time payments system. The transaction is expected to close by the end of 2015. Seven banks will own the combined entity, with PNC Bank joining the existing owners.

Will new payment schemes bump card brands aside?

"The new integrated platform will be available to all U.S. banks and credit unions in early 2016. The combined solution will deliver secure, real-time, non-card payments through a single platform that merges immediate funds availability with integrated real-time authentication and fraud management capabilities. Early Warning has indicated that a real-time bill pay solution will be offered by the combined company."

First Annapolis' complete statement may be found here: www.firstannapolis.com/news/tracking-real-time-payments-ews-acquires-clearxchange?utm_source=Tracking+Real-Time+Payments%3A+EWS+Acquires+clearXchange_15Nov11&utm_campaign=EWS+Acq+clearXchange_+15Nov12&utm_medium=email.

First Annapolis also provided the following bullet points on Chase's news, extracted verbatim below:

The firm's complete overview and analysis may be found here: www.firstannapolis.com/wp-content/uploads/2015/11/Chase-Pay-A-Notable-Entrant-to-US-Mobile-Payments_by-First-Annapolis-Consulting.pdf.

Now I'll discuss why these investments may pay off.

Visa, MasterCard now independent

Prior to both Visa and MasterCard becoming publicly traded organizations, they were associations owned by their bank members. When the IPOs took place, all of the member banks received both cash compensation and stock in the new corporate structures, but they were no longer on either company's board of directors.

Previously, it benefited all banks to keep the cost structure of Visa and MasterCard to a minimum as that squeezed out the margin which could be earned by the bank members. Since Visa and MasterCard became public companies, they introduced a host of new fees, including the transaction fee both companies charge referred to as the Acquirer Processing Fee and the Network Access Brand Usage Fee. These fees range from $0.0155 to $0.0195 per authorization. Visa introduced a monthly fee called the Fixed Acquirer Network Fee. Both companies have also significantly increased assessments. When they were associations, assessments were 9 basis points; now assessments range from 11 to 13 basis points.

Combined with all the additional, less frequent fees, the amount of costs that have been introduced since the card networks became publicly traded is staggering. Couldn't banks now form a new association and perform the services for less than Visa and MasterCard's fees?

If all the banks mentioned in the Early Warning announcement got together, including Chase, Bank of America Corp., PNC Bank, Wells Fargo & Co., Capital One Corp. and U.S. Bancorp, they would collectively represent approximately 75 percent of all checking accounts. They could join MCX or some entirely new association, which would solve the authorization issue associated with the automated clearing house (ACH).

Other factors favoring new alternatives

Also, consider the following:

Don't count Visa, MC out

Despite the above, I wouldn't bet against Visa and MasterCard. Here's why:

Eventually someone will surpass Visa and MasterCard. The question is, when will this occur and what are the early warning signs? I believe there are at least two signs all ISOs should monitor. Stay tuned to The Green Sheet for follow up.

Ken Musante is President of Eureka Payments LLC. Contact him by phone at 707-476-0573 or by email at kenm@eurekapayments.com. For more information, visit www.eurekapayments.com.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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