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Mobile Payments: The Merchants Dilemma

Where we are today

Things have not really caught up since the launch of Apple Pay and the subsequent introduction of Samsung Pay in the market. Is it because of the fact the consumers have gone past the initial “wow” factor of digital payments and returned to their usual behaviour of pulling out their bank credit card? Or is it that that the retailers and issuing banks are not geared up with the mobile payment facility due to higher expenses of accepting mobile payments with tokenization?

Unlike the banks with the capability of adoption, the small to medium merchants are definitely feeling the pinch of investing on their upgraded / integrated POS terminals to accept the mobile payments. The incentive of accepting the digital payments seems missing in reality as the interchange fee of the tokenized mobile transactions (presumably most of which are credit transactions) are on the uncomfortably higher side to the merchants, especially the medium to small ones. 

Back to Drawing Board

All right, let’s admit that the mobile payment concept is brilliant and may I also assume that the mobile payment is going to succeed with time. But what about the present situation where the merchants need encouragements and seek tangible benefits to participate into the mobile payments ecosystem?

We all agree that the (future) payments will be ubiquitous and that customers don’t really care how the payment is done but more worried about the goods and  the best discounts that the merchants are giving. After all, every customer wants to experience the joy of shopping (online or physical store) where they must be made to believe that they are a winner.

What about the merchants? Ask a customer and they will say “C’mon...the sellers are making heaps of money anyway, aren’t we purchasing goods from them?” Ask a banker and they will say “Well, we are giving them the best of our services to accept the payments at competitive costs in the market and since they are banking with us, we also provide (or offer) them finance to grow their business as the best rates.”

Hidden Answers

The solution is still elusive, isn’t it? It seems that merchants cannot have the best of both worlds – have a futuristic (and ubiquitous) payment solution and make a reasonable and sustainable margin that justifies all these investments and happily grow ever after.....

To make the above statement happen, we are looking at the solution where the merchant service fee is next to nothing or so low that the merchant doesn’t even feel the pinch. But that is not going to happen as the interchange fee (a large share of merchant fee) is serious revenue recognition for issuing banks and the participating schemes (Visa, MasterCard, AMEX, JCB, UnionPay etc).

Well, one solution is to switch from the whole of existing network of transactions and move to alternate platforms like what Dwolla is trying to do. A very bold and visionary move indeed – but such alternate channel will take a lot of time to expand into a global network. Some countries are encouraging the merchants to use local schemes which are cheaper and use the existing POS and ATM network.

The alternate and perhaps more practical option is to incentivize the merchants overall by offering them proactive contextual services beyond the payment acquiring business. The transactions can be used as the raw data, put them into an “intelligent algorithm engine” that churns out the best product proposition(s) to the merchants offered by the bank. Suddenly for the merchants, the acquiring bank is transformed from a “monthly unavoidable liability” into the best friend who understands their business and offers great advice and tailor made products to support their business in the highly competitive market and uncertain financial times.

This is not exactly big data as there is nothing “big” about the data volume. We are not talking about assessing terabytes of data anyway. The power lies in the smart analysis so that even merchants can offer incentives to their repeat customers with the art of “Buyology” i.e. enticing the customers to buy the same product again and again, an art almost perfected by the Smartphone companies.

The solution is bit complex and has to be tailor-made for each merchant that will be handled by the algorithm through enough parameters to assess the specific needs of the merchants.


As I mentioned earlier, there is no easy solution to the cost of reducing the payments unless (and very unlikely) the issuing banks and schemes reduce their cost of transactions significantly. This is perhaps bit unfair to expect from the banks and schemes as they have to support their payment operations and bear the risk of offering credits to the customers. We have to look at solutions elsewhere to expand our view into a broader perspective of banking engagement with the merchants and customers than just zeroing on the payments channels.


Comments: (1)

Melvin Haskins
Melvin Haskins - Haston International Limited - 30 December, 2016, 19:42Be the first to give this comment the thumbs up 0 likes

A well written article and excellent analysis.

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