Tuesday, February 15, 2011
The ability to easily charge for applications and services or to process micropayments was not an option a few years ago, McIntosh said. "The growth of mobile and the ability for applications to charge are key drivers for creating more transactions, often replacing checks and cash." He believes that, in the future, the multitude of devices, channels and new POS options created by the developer community will "produce more ways to pay than most people can imagine."
"I think one of the key drivers is this economy has produced a lot more sole proprietors, and they all need to process," said Ken Musante, President of Eureka Payments LLC. "We're working with smaller merchants that have been shut out of card processing. It's very easy now to set up a merchant. You don't have the compatibility issues with the phone. It's no longer an oddity to go to a farmers market or street fair and have them accept Visa or MasterCard. Previously, it was odd to see that. Now it's expected."
McIntosh likened the relationship between merchants and alternative payment providers to their existing ties with Visa Inc., MasterCard Worldwide and other established payment networks. With each new payment alternative, he said merchants must evaluate the cost, speed, convenience and security involved with processing transactions.
"Merchants have the opportunity of adopting an alternative payment offering, either by accepting NFC, bar codes and/or QR codes," McIntosh said. "Adopting an alternative payment product would allow merchants to expand their customer base, provide more payment options, provide more efficient service and position themselves as a leading merchant and preserve a share of the early adopter consumers."
McIntosh referred to Starbucks Corp. as a prime example of a larger merchant reaching out to early adopters with a mobile payment application that links to its prepaid cards. In 2010, Starbucks reportedly loaded $1.5 billion onto its prepaid cards. He said the new app offers customers a quick payment method, and cards can be managed either online or via mobile devices, similarly to mobile banking solutions today.
McIntosh revealed that potential risks for merchants include possible reduction of processing speed, less reliability, lack of hardware certification, changes in liability and increased investment costs. As a cautionary note, he said many merchants are concerned about backing the wrong technology.
Payment processors must overcome significant fixed costs, and the relationships established with alternative payment providers will either be cooperative or competitive, McIntosh said. Once fixed costs have been recovered, he believes processors will profit from revenue generated by the increased transaction volume available through alternative payment channels.
"Their business is all about scale and optimization," he said. "They allow the ability to keep their customers on the traditional rails, and they have the opportunity of generating additional services and being able to charge additional fees for alternative payment transactions."
He believes what may complicate matters for processors is dealing with additional messaging protocols and interfaces, managing more clients, and navigating through a certification process that could become more difficult or nonexistent in the future.
McIntosh sees little change for network providers that embrace alternative payment providers. "All alternative payments must travel on existing networks' infrastructures used by credit, debit, signature or PIN charge; ATM; or the ACH network." Brand recognition will favor network expansion into new markets, he added.
Due to its low or nonexistent fee structure, McIntosh considers the automated clearing house (ACH) network a viable option for mobile payments, as well as for POS integration. However, for this to occur, settlement speed must improve, he said. A shift in liability could also expose networks to increased risk.
McIntosh described the relationships among issuers and alternative payment providers as either integral or nonexistent. Alternative payment products linked or integrated with a checking account will be interconnected, whereas products designed specifically for the unbanked or underbanked will have no connection to issuers. He believes opportunities exist for issuers to introduce new payment products and potentially reduce the risk of losing interchange revenue.
While the opportunities and risks may differ for each segment involved in the payments sphere, a consistent thread among all is that alternative payments will generate more transactions, McIntosh said. He added that the "complexity of the transaction path, the multitude of devices and wireless technologies and payment options will add a layer of complexity to the transaction environment," that will emphasize the need for accurate transaction-level information.
Inetco will present its next webinar, Why Do Alternative Payments Require New Business Transaction Management Tools, on Thurs., March 17, 2011. To register, visit www.inetco.com/Alternative_Payments_Part3/ .
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