June 2, 2011
Merchant-acquiring executives see new threats coming from the payment card networks, and they believe established payments players such as PayPal Inc. will be much more of a force in mobile payments than telecommunications companies. In a survey of industry leaders, Aite Group LLC also found that acquirers are not too keen on Square Inc., the hot mobile-payments start-up headed by Twitter co-founder Jack Dorsey.
The findings come from an Aite survey of 20 industry executives, including 17 chief executives or other so-called “c-level’ officers, at last month’s Electronic Transactions Association annual conference in San Diego. The sample group was too small to make statistically valid inferences from the findings, but the results give some interesting insights into industry thinking.
While the entry into mobile payments from companies ranging from Google Inc. to phone companies has received plenty of press lately, acquiring executives are much more worried about what more familiar names in their industry will do. Nearly all of the respondents, 95%, agreed with the statement, “Card networks are increasingly going to compete in merchant acquiring in the years to come.”
The source of such fears is a fast-changing landscape in which all the payment card networks are looking for new revenues and markets. “Some of my clients are freaking out, without naming names,” says Adil Moussa, an analyst at Boston-based Aite. Card networks are already direct acquirers in foreign countries, he notes, and Visa Inc. moved closer to acquirers’ turf with its 2010 acquisition of e-commerce processor CyberSource Corp. On the issuing side, networks are offering services to commercial card issuers that compete with those from third-party processors, Moussa adds.
On a related note, some 55% of the respondents agreed with the statement, “Larger issuers and acquirers will increasingly seek to disintermediate the card networks in the years to come,” while 30% disagreed and 15% were neutral. Yet despite their suspicions, three-fourths of the respondents believe the networks will remain the dominant payment brands in the mobile-payments era.
Asked to pick two names from a list of non-traditional payments companies that they believe will be major players in mobile payments, 65% of the respondents named PayPal, followed by Apple Inc. at 60% and Google at 55%. The rest of the companies listed weren’t even close: Amazon.com at 10% and Facebook and Verizon, both 5%. Isis, the AT&T/Verizon Wireless/T-Mobile joint venture, scored a zero, as did AT&T itself and Nokia, the big cell-phone manufacturer.
And asked about the influence of mobile-payments players, 35% agreed with the statement, “Emerging players like Square are going to force more transparency in merchant-acquiring pricing,” while 45% disagreed. Square charges a flat 2.75% of the sale for swiped transactions, which Moussa says some acquirers view as potentially confusing because of the intermingling of interchange and processing charges.
Meanwhile, 75% of respondents disagreed with the statement, “Emerging players like Square are innovating in an impressive way in the way they do underwriting,” while only 5% agreed, 15% were neutral, and 5% didn’t know. While Square uses many traditional criteria in deciding whether to book a prospective merchant, Dorsey has said it also looks at such non-traditional factors as the applicant’s social-media usage. Traditional acquirers look askance at Square’s model and believe it is vulnerable to fraud, according to Aite. “Their underwriting criteria may be their weakest link,” is how Moussa summarizes the comments he received. “They think it’s a disaster waiting to happen.”
Still, 80% of the respondents agreed that mobile point-of-sale solutions are going “to help expand dramatically” the number of businesses accepting cards.
In other findings, half of Aite’s respondents believe the U.S. will officially move toward so-called EMV smart card payments in the next few years. Forty-five percent believe the U.S. will leapfrog EMV and go straight to mobile payments.
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