Four Emerging Payment Stories
By David Dorf-Oracle on Nov 14, 2011
The world of alternate payments has been moving fast of late. Innovation in this area will help both consumers and retailers, but probably hurt the banks (at least that's the plan). Here are four recent news items in this area:
Dwolla, a start-up in Iowa, is trying to make credit cards obsolete. Twelve guys in Des Moines are using $1.3M they raised to allow businesses to skip the credit card networks and avoid the fees. Today they move about $1M a day across their network with an average transaction size of $500. Instead of charging merchants 2.9% plus $.30 per transaction, Dwolla charges a quarter -- yep, that coin featuring George Washington.
Dwolla (Web + Dollar = Dwolla) avoids the credit networks and connects directly to bank accounts using the bank's ACH network. They are signing up banks and merchants targeting both B2B and C2B as well as P2P payments. They leverage social networks to notify people they have a money transfer, and also have a mobile app that uses GPS location.
However, all is not rosy. There have been complaints about unexpected chargebacks and with debit fees being reduced by the big banks, the need is not as pronounced. The big banks are working on their own network called clearXchange that could provide stiff competition.
VeriFone just bought European payment processor Point for around $1B. By itself this would not have caught my attention except for the fact that VeriFone also announced the acquisition of GlobalBay earlier this month. In addition to their core business of selling stand-beside payment terminals, with GlobalBay they get employee-operated mobile selling tools and with Point they get a very big payment processing platform.
MasterCard and Intel announced a partnership around payments, starting with PayPass, MasterCard's new payment technology. Intel will lend its expertise to add additional levels of security, which seems to be the biggest barrier for consumer adoption. Everyone is scrambling to get their piece of cash transactions, which still represents 85% of all transactions.
Apple was awarded another mobile payment patent further cementing the rumors that the iPhone 5 will support NFC payments. As usual, Apple is upsetting the apple cart (sorry) by moving control of key data from the carriers to Apple. With Apple's vast number of iTunes accounts, they have a ready-made customer base to use the payment infrastructure, which I bet will slowly transition people away from credit cards and toward cheaper ACH. Gary Schwartz explains the three step process Apple is taking to become a payment processor.
Below is a picture I drew representing payments in the retail industry. There's certainly a lot of innovation happening.