Retailers have pushed back against the card networks – and the clusterfuck of payments processing they created – for a long time.
Walmart has been in and out of the trade rags for years over Visa’s fees.
But this time the networks are dealing with retailers who have optionality.
Ecommerce retailers benefit from their customers being natively digital. These customers can connect their bank accounts just as easily as they can insert their credit card information.
With open banking well under way in Europe, and the US getting its first crack at things under FedNow in 2023, we expect increased retailer pressure against the oligopoly of the card networks.
Over the past year, as more transactions became digital, the world’s largest ecommerce retailer, Amazon, has made two drastic changes.
First, it started surcharging customer in Singapore and publicly said that card payments are an old payment method.
Then just this week it announced that it would no longer accept Visa credit cards in the UK.
Amazon’s perspective is literally the same position we have been espousing for years:
Technology should drop the cost of payments over time, not increase it.
Amazon said: “The cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for customers.” The online retailer said costs should be going down over time due to advances in technology, “but instead they continue to stay high or even rise”.
Yet everywhere we look the payments ecosystem continues to grow revenues despite the fact that there is zero organic growth.
Zero.
Payments today is a huge tax on global GDP.
There’s no value being created.
Here’s what we think happens.
First, major ecommerce retailers incentivize consumers to pay with bank rails. This will drastically decrease their cost of commerce, and they can afford to give consumers coupons or other benefits that are much more lucrative than a cardholder’s current issuing bank’s 1% cash back. We suspect all Buy Now Pay Later tools to run on bank rails before long for this reason.
Over time additional tender types – like crytpo – will be folded in.
Second, retailers create banks, just like Square. Now they can offer consumers “house” accounts so the cost of payments are literally zero. Square is basically here already, far ahead of virtually every other payments company.
Third, these bank providers start collecting data and building data products from the transaction insights. In this way the cost shift moves from gouging retailers for 3% of gross (or more if you’re a greedy fucking payments bro) to actually earning (not stealing) revenue through real value creation.
Yea, it’s a crazy concept, we know.
Nobody with a brain can defend these practices in today’s economy. Good for Amazon for showing consumers just how much the card in their pocket penalizes humanity.
“Penalizes humanity”…you crack me up Thaeler. We all do all recognize the technology shifts and where real value creation is critical. The big question is whether the card networks, banks or processors/acquirers can and will move quickly enough to maintain leadership positions or whether the savvy fintechs coming up from behind go flying right by. I think w’ll see a mixture of earlier aggressors like Square winning share and creating more value, but it will settle with one or two card networks, and a couple of the major payment gateways dominating. Banks, processors/acquirers and 90% of the fintechs…not so much.
someone has to poke the bear. You reading this from your morning boat ride?