Point of Transaction 201: Competition for Consumer Choice
Lesson 3 Discussion Board: How did the dynamic between retailers and banks at the point of transaction become so 1) polarized, and 2) cost-focused? Click here to respond.
So far in our class, we’ve reviewed the forces at work on each of the key players in the value chain and how those forces converge on the point of transaction. In that convergence these forces often collide in an effort to influence how a consumer chooses to access value each and every time she enters the checkout. We concluded the last section by looking (in amazement?) at the myriad of investments made over the years in a repeating pattern of investment, proposition, modest growth, and ultimate decline of ACH-based point of sale payment alternatives. So why does the industry keep spawning these options, and why have all these alt-debit innovations failed to “ignite?” We’ll take a stab in this class at asking the questions that may lead ultimately point the way to answers.
That’s Why It’s Called a “Value Proposition”: Let’s go way back to a couple of days ago when we first met our consumer walking through the checkout line. (Read article) She had a basket full of goods (& not-so-good-for-you’s) and stood ready to access funds held somewhere else. And in the choice she makes, a couple of things are probably true: 1) she uses the same access vehicle she’s used there before, and 2) she likes the value it provides to her. And therein lies the alt-debit innovator’s dilemma: How do you get a satisfied customer to change their behavior? And not just slightly, but in the case of debit alternatives, rather radically?
The funny thing about consumer behavior — despite the deeply held theoretical (yes, very theoretical) beliefs of behavioral economists — is that consumers are very rational decision-makers. Policy makers of every stripe can look down from their enlightened ivory towers and wonder at the choices people make, trying to engineer their “ideal” (read “academic”) outcome, but market forces always prevail to find that the best value proposition, and most sustainable value, wins. For the stakeholders in our story, every single payment transaction represents:
But, What About Our Super-(AC)Hero? Is the industry still waiting on a back-to-batch-settled-basics debit superman? Is the time now right for the rise of a new deposit-access payment type at the point-of-transaction? So, maybe the recent regulatory change in the marketplace will mean an increase in ACH-driven alternative payment vehicles? Really? But if the unit cost to process deposit-access vehicles from the point of sale goes down, hasn’t the business case for alternative access via the ACH just gotten worse? The challenge with electronic payments has always been that, unlike the subsidized cash management pricing that banks have delivered to retailers in an effort to win a big depository and lending relationship, the costs of electronic payments have always been explicit, unsubsidized, and up-front (some in the retail community might even argue “in your face”). If those up-front explicit costs are headed south, doesn’t that make the argument even more challenging for a new deposit-access method that is not real-time, online, authorized, guaranteed, etc? And why has innovation on the retail side of the industry focused so heavily on cost reduction, rather than value creation?
A Modest Proposal: What if all the money that has been invested in alternative debit vehicles, predicated on lowering (marginally) a large retailer’s cost of acceptance on the handful of transactions where consumers actually adopt, were instead spent on extracting more value — not cost, but value — for the retail acceptors on the payment vehicles consumers have already shown they prefer to use? Why is it the CFO, and not the CMO, who leads the conversation with the processors, networks, and financial institutions? Why haven’t the retailers demanded more marketing, sales and advertising value from the products that have become such an integral part of their operations? How might the major payments players at the point of transaction today ensure that they continue to earn the continued adoption and promotion of the acceptors who generate every transaction they see?
Retailers have always had tough business problems to solve, chief among which have been finding, attracting, and retaining customers. In the coming regulatory change, financial institutions may find that their chief business problems begin to look pretty similar. Both retailers and financial institutions share the same customer, and both have businesses that are born from the moment when a customer puts a product on the retail counter and access funds from their bank to pay for it. Hmm… maybe these two companies could work together? At MPD, we have identified a broad range of practical innovations that can alter the dynamic at the point of transaction and solve two business problems at once. We’ll talk a bit more about that near the end of the semester. But if you’ve got challenges that can’t wait until then, come see us: http://www.marketplatforms.com
Lesson 3 Discussion Board: How did the dynamic between retailers and banks at the point of transaction become so 1) polarized, and 2) cost-focused? Click here to respond.
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Point of Transaction 201 Lesson 2: PoT Evolution
Point of Transaction 201 Lesson 1: PoT Landscape
Debit 201 Lesson 3: Prepaid Implications
Driving Payments Innovation through Education- PYMNTS University
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