| p>In business, as in war, it seldom pays to attack | | | | value. We have not had a single chargeback or |
| a powerful and well-entrenched adversary | | | | fraud claim in 18 years. Businesses that can't offer |
| head-on. A successful assault is more likely to | | | | card companies these advantages pay even |
| come from an unexpected, and less | | | | more than we do. |
| well-defended, direction, or from a source that is | | | | Companies generally pass these costs on to |
| not perceived as a threat until too late. | | | | consumers in the form of higher prices. But |
| Mastercard and Visa have long been the | | | | consumers happily swipe away without realizing |
| payment-processing industry's entrenched powers. | | | | that they are indirectly paying for the privilege. |
| With a firm grip on consumers' wallets and | | | | With little competition, the proliferation of fees has |
| merchants' card machines, the two mass-market | | | | remained largely unchecked. Technological |
| card brands have steadily increased their take as | | | | innovation may put an end to that, however, as |
| the middlemen in transactions totaling hundreds of | | | | new ways of processing payments allow mobile |
| billions of dollars every year. American Express | | | | phone companies and others to challenge today's |
| staked out a small piece of turf at the top end of | | | | titans. |
| the market, but despite decades of support from | | | | If AT&T and Verizon succeed, more companies |
| deep-pocketed parents, Discover Financial Group's | | | | may be tempted to enter the payment |
| rival processing network has barely made a dent, | | | | processing market. For online transactions, Paypal |
| even though it usually offers a better deal. | | | | has long provided an alternative to credit cards, |
| But AT&T Inc. and Verizon Wireless have | | | | but it is currently a non-factor in the offline world. |
| emerged as potential allies that can help Discover | | | | Encouraged by other new players in the payment |
| break through the Mastercard-Visa Maginot Line. | | | | business, it may make the leap into bricks and |
| The two wireless providers are working on a plan | | | | mortar. Large vendors like Google, Microsoft and |
| that would allow U.S. consumers to make | | | | Apple might market their own payment systems |
| payments using their mobile phones.(1) T-Mobile | | | | to small businesses. Intuit, the maker of Quicken |
| also reportedly wants to work with Discover and | | | | and Quickbooks, is another potential player. |
| Barclays PLC. | | | | As more companies get into the business, |
| Using mobile phones for payments is not a new | | | | processing fees for merchants should be driven |
| concept. A recent study by Gartner Research | | | | down. Lower costs will allow retailers to hold the |
| estimated that more than 108 million people | | | | line on prices so consumers can share in the good |
| worldwide will use mobile payments this year. | | | | fortune. |
| However, until now, U.S. interest has been limited. | | | | However, all this potential innovation must make it |
| In the developing world, where many people lack | | | | past the regulators first. In May, 2010, three |
| bank accounts or credit cards, mobile payments | | | | economists from the Federal Reserve Bank of |
| are easily attracting consumers who previously | | | | Boston issued a policy paper offering some |
| relied on cash.(2) In the U.S., however, companies | | | | suggestions on how to encourage the |
| interested in offering mobile payments must | | | | development of mobile payments. |
| contend with the powerful credit card industry. | | | | Uncertainty over regulations "inhibits potential |
| As plastic has supplanted paper in this country, | | | | market participants and intensifies the confusion |
| credit card companies have reaped the profits. | | | | over which entities have a chance at owning the |
| According to the Nilson Report, as cited by | | | | customer relationship or how such ownership |
| Bloomberg, cards and electronic payments are | | | | might be shared," the authors said. They went on |
| now used for more than half of U.S. consumer | | | | to recommend that "The Federal Reserve could |
| purchases. In 2003, only 36 percent of purchases | | | | address this issue by convening a group of |
| were paid for this way. As a result of all this | | | | regulatory agencies to start planning potential |
| swiping, Visa's annual operating income has grown | | | | regulatory changes in advance of the widespread |
| sixfold since fiscal 2005 to $3.54 billion last year. | | | | adoption of mobile payments and by raising the |
| MasterCard's annual take has increased more than | | | | issue with legislators and the administration." |
| fivefold to $2.27 billion. | | | | The Fed would not be the only one seeking the |
| Most of the profits come directly from | | | | attention of Congress and the White House. It's a |
| merchants, who must pay in order to use the | | | | safe bet that the entrenched card companies and |
| companies' services to process payments. Our | | | | the many banks that draw huge profits from the |
| small business, for example, pays a standard | | | | credit card business will make it a top lobbying |
| "discount" fee of around 2.5 percent whenever | | | | priority to set up as many barriers to competition |
| we accept a payment by Visa or MasterCard. We | | | | as possible. |
| also pay "interchange" fees, which can be another | | | | It's still too soon to tell how the payment |
| 2 to 3 percent, on corporate cards, rewards | | | | processing business will evolve and what role |
| cards and international cards. | | | | smartphones and other new technology will play. |
| Our business is not exactly a huge burden for the | | | | But AT&T and Verizon's planned experiment is a |
| card companies. We tend to have a very small | | | | welcome first blow against the card companies' |
| volume of transactions, each with a high dollar | | | | fortifications. |