Good discussion in yesterday’s blog led to spin off this thread separately. What are the drivers of debit consolidation?
- The new tokenization project focused on mobile at the POS. There is NO VISA in this project.. mobile wallets hold a token that can only be resolved by the consortium. Token could be a debit, token could be credit… My guess is Token is routed via the debit network (one that banks control)… authorization is also sent via bank owned “consortium” debit network. JPM seems to be only bank with another option… routing through their own version of Visanet. This seems to protect JPM’s interchange and is a backstop to any regulatory issues surrounding a new token pricing scheme which is dependent on debit.
- Post Durbin Margin is not sufficient to support 6+ players. There are no anti trust issues from my perspective because the rates have been set. Banks also have the right to choose with who and how they settle, just as the choose membership in ACH today.
- Merchants AND top issuing Banks both want to kill signature debit. There will be moves now to encourage consumers to use PIN Debit (I can’t believe this is coming full circle). See the KC federal reserve note from yesterday on dynamics.
- Banks need flexibility of a 3 party system at POS without going through creating a new acquisition brand. PIN Debit solves this problem today.
- Its not all about interchange…. the battle is around data, data, data. Did you see that MA was caught with hand in the cookie jar.. selling data for retargeting? If I were going to create a new BIN range… and need was NOT to maximize interchange, but to maximize adoption of a new product.. one that was very focused on data… where would you build it? on Visa? on Signature Debit? on PIN debit? Merchants are already starting to take advantage of services from FirstData, TSYS, FIS, … that allow them to sort through hashed card numbers to look for trends. Banks view this as a key threat.. tokenization would further abstract card numbers.. both for mobile wallet providers AND for processors.. Top issuers want to stop the data leakage. From regulatory perspective they are pitching this as “consumer protection” … which is certainly true.. but doubt if this is the true center of the bank business case.
- PIN debit is already the fastest growing payment type. Visa is pushing “chip and signature” through strange incentives.. the rest of world thinks they are bonkers.. banks and merchants are now aligned.. PIN is the behavior they want.
- Merchant nirvana: Canada’s Interac
- New revenue streams. BAC’s debit card fee efforts didn’t fare well. All of the CLO programs are also struggling… but banks are still working to make merchant funded rewards a reality.
Again, I can’t help but be struck at how insane all of this is. The paradigms of debit and credit networks are ripe for disruption. Why do I present a payment instrument that requires the merchant to ask its bank if it could obtain money from my bank? In the connected age, why don’t I just tell my bank to pay the merchant? This is what Sofort brought about in Europe… of course this is also why US banks are not keen to enable real time transfers..
As I told the KC federal reserve.. I absolutely think that the FED should either extend FED WIRE to regulated non bank FIs (MSBs). Enabling a SOFORT type solution in the US would help break the log jam in mobile payments and this bank “control” mindset.
SOFORT Overview http://www.europeanfinancialreview.com/?p=4113