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- ADDING MULTIMEDIA Ross-Simons Jewelers Kicks Off New Web Video Series With Celebrity “Stylist to the Stars” Phillip Bloch
- Mintz Levin Ranks in Top Five Underwriter’s Counsel in Q1 2012, According to The Bond Buyer
- S&P Capital IQ Initiates Coverage on Xplore Technologies Corp. in Standard & Poor’s Factual Stock Reports
- A.M. Best Affirms Ratings of Sammons Financial Group, Inc. and Its Subsidiaries
- A.M. Best Affirms Ratings of Sooner Insurance Company
PYMNTS Voice
Commentary » PYMNTS Voice
Analysis: Hip to be "Square?" Why Visa Thinks So
Last week’s announcement of Visa’s strategic investment in Square set off a wave of news reports and blog posts about its implications for Visa, Square and the rest of the ecosystem. Most of the discussion was focused on the how much Visa invested (they say it was in the “single millions of dollars”) and speculation as to Visa’s motivations for doing so (neat mobile technology). I think that perhaps the more interesting story is what this could mean to Square’s prospects in the long run, and more importantly, one of its major marketplace challengers (Intuit’s GoPayment) and small businesses more generally.
Federal Reserve Board’s Proposal Overlooks Consumer Interests
Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, instructs the Federal Reserve Board to write specific rules governing debit card payments. On December 16, 2010, the Board issued its proposed interpretation of the legislative language of Section 1075-known in the payment industry as the Durbin Amendment, which includes two proposed alternative interchange fees standards. One of the alternatives contains an issuer-specific standard with a safe harbor (of 7 cents per transaction) and a cap (of 12 cents per transaction), and the other simply provides the 12 cent per transaction cap. At this time, the Board's proposed Regulation II fails to allow for a fraud adjustment. While the Board is likely to allow an upward adjustment of interchange fees to account for fraud-prevention costs, this rule reportedly will not be finalized until after the interchange fee standards are set. The current proposal also includes two alternatives routing requirements, one that requires merchants be allowed no less than two unaffiliated networks overall and one that requires merchants be allowed no less than two unaffiliated networks per type of debit transaction (signature or PIN).
Slow and Steady Just Might Not Win the Contactless Race
Our long-held view that contactless cards were going to fizzle has really gone mainstream. Take a look at Randall Stross’ piece in yesterday’s Sunday New York Times.
His piece, “Maybe Your Old Card is Smart Enough” makes the point that those [contactless smart cards] emperors really have no clothes. The promise of faster check-out (one of the touted consumer benefits) and lower fraud costs (one of the touted merchant benefits) never materialized – contributing to why there are so few point of sale terminals that accept contactless smart cards in the US, which contributes to why there is so little consumer adoption. He also makes the point that we have been making for years now too – the longer it takes for contactless to ignite in the US, the more likely it is that a better and more beneficial solution will emerge. And, Stross points to a PIN-based card that is but one example of a technology that will make contactless obsolete before it ever gets ignited.
Speaking of ignition, that is really one of the important “lessons learned” here. Many simply underestimated the what it takes to ignite a new product in a complicated ecosystem like payments. I’d love to have $1 for every time an analyst or consultant swore that contactless was the “next big thing” worth betting the farm for. We don’t think that distinguishing between “blips” and “bellwethers” is hard. Getting the rest of the world to listen when you’re going against the grain, often is. Thanks, Randall!
What’s Next with the Consumer Financial Protection Board: Insights from Elizabeth Warren’s “Making Credit Safer”
The Consumer Financial Protection Board, which was set up by Title X of the Dodd-Frank Act, is waiting for the President to appoint a director to organize the new agency and pursue its mandate to prevent unfair, deceptive and abusive practices. Insights into how the agency may go about its job, and think about the problem of consumer credit, can be gleaned from the forceful and influential article by Elizabeth Warren, along with Oren Bar-Gill, who has been the leading advocate for a new agency focused on consumer credit.
Tilting at Windmills: Some Final Thoughts on Dodd-Frank
If Senators needed any further reason not to vote for the misguided Dodd-Frank bill two stories over the last week should have pushed them into the NO column.
Durbin, Debit, and Financial Reform
The U.S. Congress is in the final stretches of passing financial reform legislation which has been under intense discussion and debate since the implosion of the financial system in September 2008. Congress is now trying to reconcile the Senate bill spearheaded by Senator Dodd and the House bill shepherded by Congressman Barney Frank. Financial reform was one of the most important topics that Congress has had to deal with. The housing bubble that burst in the latter part of the decade revealed enormous problems in financial regulation in the United States and other countries. Whether those problems actually caused the crisis, or made a bad situation worse, is a subject that will be debated for a long time. The unfortunate reality is that there was a mass delusion that housing prices would just keep going up forever, untethered to realities such as supply and demand, and it is just hard to know whether any regulator would have done anything about it. Nevertheless, when the bubble burst, it became apparent that there were a lot of aspects about the financial services industry, and how it is regulated, that needed fixing.
Where There’s Smoke, There’s Fire?
There’s a lot of speculation about the recent move by Target to abandon its Visa co-branded card in favor of its own private label store version. Some say that it is ‘back to the future’ and the start of a trend that will end up bifurcating the card market: general purpose payment and store-branded cards with little in between. Others say that this is a “one-off” by a big player known for making bold moves in the space (e.g. remember the Target Visa smart Card, which Money magazine cited “about as useful as a Ferrari in a traffic jam?”). Here are a few observations on the topic.
Once upon a time, co-branded cards were the cat’s meow. They were highly attractive to issuers because they accrued higher interchange fees and gave issuers and retailers a way to capture affinity (and monetize it). You could find a card for just about any affinity…from your favorite store to your favorite school to your favorite charity. The theory of the case was that affinity = top of wallet.
As these programs proliferated, it suddenly became harder and harder for retailers to associate increased traffic (code for sales) to the use of these (more expensive) cards. And, now in the age of more stringent card regulations and tightening credit, it has also become more difficult for issuers to justify the economics that come with some of these programs, which sometimes includes revenue guarantees back to the co-branded partner.
So, it’s probably not that surprising that we’re seeing some flux in this whole space at both ends: retailers with the scale of a Target exploring their options, in spite of the receiveables’/risk management issues that plague this category of credit card, and issuers reducing the number of affinity cards that they support (e.g. Chase/Starbucks, Citi/Home Depot).
Target says that it’s done a bunch of research and suggests that it gets more incremental sales from customers who use its own store card, and will now have better economics to create additional incentives (coupons, for example) that will drive more sales, even after accounting for the risk (and also probably after discerning that it does not have to comply with some of the same “income verification” issues at POS that they once feared the CARD act would require.)
But, as they say, for every action, there is an equal and opposite reaction. Target’s announcement comes about two weeks after one made by American Express and Macy’s to issue a co-branded card, and a month or so after Chase and Hyatt announced a co-branded card program. So, it seems hard to make the case that store card programs are going the way of the hula hoop any time soon.
I don’t have any inside baseball information on this, but wonder if Target’s decision wasn’t based on an insight as simple as their consumers used their co-branded cards like a store card. By that I mean, that customers with a Target card, were, by and large, using the card at Target exclusively and not as their “top of wallet” outside of that store. If that is the case, then the economics for them could be far better if they managed their own program. And, if that’s the case, it might also imply that there might be more value created by the more “general” affinity card programs: charity, sports, and travel, where the incentives and the rewards accrue to the underlying passion, with better redemption options - and where there is real evidence of top of wallet placement.
I was talking with someone today about how sometimes the mistake the people make in thinking about innovation is trying to make it too big, when incremental improvements sometimes deliver a more compelling use case and better margins. Maybe those who see a much bigger story here are operating under a similar precept.
What will be interesting to watch is how moves like what Target and others in this space are doing affect loyalty programs and rewards/redemption options more generally. The new realities of the economic environment and financial regulation will force a new layer of decisioning about the one thing that really impacts what everyone in the ecosystem cares about – sales. I think we’ve just started to scratch the surface on the new ideas and implementations that will be used to drive affinity to cards, retailers and card products.
It's Time to Take the Thumb Off of Consumer and Business Borrowing to Get the Economy Moving Again
Revitalizing credit, creating jobs, and stimulating the U.S. economy was the subject of a panel that I participated in last week at the U.S. Chamber of Commerce's Capital Markets Summit. A lot of people have said that businesses — especially small ones — can't get credit. A big question for the panel was whether that's really true. Here's what I said.
What is Alternative Payment?
The payments landscape is constantly changing with new technology and applications regularly emerging trumpeted as the latest and greatest "Alternative Payment" system. With all of this change it might be helpful if we define "Alternative Payment." Perhaps the challenge is to define "Traditional Payment" and say that everything else is Alternative Payment, but somehow that does not satisfy the question.
The Invisible Engines that Drive Innovation and Transform Industries
The use of software platforms to drive innovation and transform industries has exploded since the 2006 publication of my book Invisible Engines with MIT Professor and former Sloan School Dean Richard Schmalensee and Harvard Business School Professor Andrei Hagiu. Around the globe, invisible engines are ushering in a new era of technological change based on software. The Apple iPhone has shaken the mobile phone industry worldwide in part by creating a massive applications business built on the phone's operating system. Firefox has revolutionized the browser industry by encouraging developers to write add-ons and in doing so toppled Microsoft's Internet Explorer from dominance in many countries. Facebook has created a powerful social networking platform by opening itself up to developers. Amazon has started cloud-computing platform that enables entrepreneurs to access its vast software code, hardware and global communication systems over the Internet.
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