The Bankwatch

Tracking the consumer evolution of financial services

Payments networks are vulnerable to competition


Osaifu-Keitai literally means Wallet – mobile in Japan.  It is fast becoming the de-facto standard there  for making small payments.  The key is integration with the NFC enabled phone.

It is offerred by NTT-Docomo

Here is the description from the 2012 World Payments Report.

Osaifu-Keitai (‘Wallet Mobile’), developed by NTT DoCoMo, is now the de facto standard m-payment system; lets consumers use phones as substitute for cash/cards at vending machines and merchant POS. Offers range of payment services, including e- money, identity card, loyalty card, public transport ticketing (railways, buses, air travel), and credit card.

Here is a link to the mobile site.

We are used to seeing events unfold in Japan as the forerunner to what we will see.  However its less clear that the development of NFC enabled phones as payments hardware and mobile wallets is a slam dunk.

This from idownload bog notes Apples work with their own protocol for which they just received a patent last month.  The blog quotes Apple executive Schiller that its not clear NFC is a solution to a current problem.

Certainly at the MintChip event last week in Toronto, there was no talk of NFC and the creative developers who participated in the MintChip challenge had other ways to access the system including QR codes.  FlashCash bypasses the card terminal altogether.  The smartphone reads the QR code on the receipt, and automatically debits the customers MintChip and credits the restaurants MintChip.

Mini Checkout goes further, and the phone scans the barcode in a grocery store and similarly credits the store.

QR codes would require some code changes in but bar codes are prevalent today.  Either way the changes are much simpler than merchant terminals.

The other thing at play here is the use of the payments networks, interchange and the merchant fees paid to the networks and banks.  We see new technology here that eliminates all that and uses a Wifi connection. 

Relevance to Bankwatch:

This all leads me to re-consider the card terminal and the payment interchange networks.  The merchant terminal is a paradigm that requires enormous infrastructure and costs to the merchant.  But more importantly it protects the banks’ revenue and hold over the payments business. 

A future with multiple terminals is a mess.  What if we can develop a future without merchant terminals?  MintChip offers a glimpse of how that might work, but more importantly could be a catalyst to new payments paradigm that delivers payments in a different way that disrupts current models. 

Certainly solutions such as MintChip will still require some implementation work.  This is an opportunity for providers of services to the financial services industry.  There has to be opportunity here (random examples) for the Fiserv’s, D+H, or Interac of the world, or perish the thought, banks’ themselves.

Going back to the Japanese NFC example, it would run over traditional networks, and that approach is vulnerable.

Bottom line, I believe the current payments network infrastructure is vulnerable to competition, to dis-intermediation producing loss of future transaction volume.

Written by Colin Henderson

November 2, 2012 at 16:35

Posted in Uncategorized

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