21 October 2017
Anthony Pickup

Anthony Pickup on Payments

Anthony Pickup - MYRECS LTD

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Can a new entrant be a threat to the big card schemes?

29 September 2017  |  5092 views  |  1

Stumbling on news that a new payment network Satispay[1] from Italy gaining significant FINTECH investment.  Looking at other payment schemes I wondered what made this so attractive to invest 27m Euros?

The Satispay mobile payment model is where customers set a weekly budget for spending at merchants that tops up automatically from their bank account, currently weekly.  Merchants pay a fixed fee for purchases above 20 Euro of 20 cents and fee free for transactions below 20 Euros.

The article states the primary driver has been the success in Satispay of signing up merchants to accept the mobile payment service across the whole of Italy. I believe there may be three other reasons. 

Firstly, the disruption that PSD2 and SEPA regulations creates in European banks.  For Satispay the current customer loading process appears far from perfect, there is a two day delay in receiving funds into their Satispay account in Italy.  Regulatory changes may in the foreseeable future help to reduce any delay in crediting Satispay customer and merchant accounts.

Secondly, is the international card scheme merchant fees for transactions being a fixed fee to a smaller fixed fee and a % of the transaction amount.  Satispay offers merchants a fixed fee for transactions above a fixed amount (20 Euro) and ‘free’ transaction for low value payments.  If Satispay can service small value transactions between 10 Cents and 1 Euro profitably then this would be disruptive to the established payment schemes. 

Thirdly, the specific consumer payment market in Italy that may make Satispay successful.  In the Italian market consumers have widely adopted pre-paid cards[2] in larger numbers than other EU markets. 

Others mobile payment schemes are successful where they are merchant owned ‘Closed’ loop payment model such as Starbucks.  The primary drivers to their continued success is often stated as providing unique services[3] such as ‘order ahead’ or loyalty offers to the consumer as well as being more convenient than cash.

There will be many other challenges for Satispay to overcome in establishing a new national payment brand and they may ultimately not succeed.   What Satispay does show is that new organisations are trying to disrupt the four party payment scheme business model at its core.  

After over 30 years domination of the four party model only a really disruptive solution or event is likely impact this.  The Satispay model does facilitate buyers and senders transferring funds more directly and at a lower cost to merchants but if this will be enough to threaten the existing card schemes in either a national market or across a significant merchant segment internationally we must wait and see.

 

[1] https://www.finextra.com/pressarticle/70612/italian-m-payments-startup-satispay-raises-eur183-million

[2] https://www.be-tse.it/italian-prepaid-card-market-any-room-for-growth/

[3] http://uk.businessinsider.com/starbucks-loyalty-program-now-holds-more-money-than-some-banks-2016-6

  

 

TagsPaymentsStart ups

Comments: (2)

Chris Brown
Chris Brown - Trusek - Amersham | 02 October, 2017, 11:46

It's interesting that what we currently have now is called a "four party model". Clearly this represents the card holder, issuer, acquirer and merchant. What about the card schemes? Surely, they are a party to the transaction. They certainly take a cut of the transaction fees. Or the processors? It's way too technical and expensive to integrate with the card schemes directly so there must be separate entities (internal or external) to allow a financial institution to connect.

Then there are the Payment Service Providers (PSPs) who provide the interfaces for the merchants, the AI developers who provide the systems to check for fraud, the PCI auditors who check that all the other parties are looking after the card details properly, etc, etc, etc...

It's no wonder the transaction fees are so high.

I guess it would irritate me less if the service provided by the card schemes was better. Provide decent interfaces so that processors and PSPs weren't required. Provide decent security so the fraud systems and PCI DSS auditors weren't required. But they don't.

What's needed is a new and better type of payment network. This would take courage, vision and some fairly deep pockets. If you know anyone like that I would be very keen to talk to them.

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Anthony Pickup
Anthony Pickup - MYRECS LTD - Manchester | 02 October, 2017, 16:25 Great comment originally payments were complex to Transfer money from buyers to sellers. That is changing then the issue becomes trust, confirmed payments and redress / insurance when there is a breakdown in a complex transaction. Schemes help manage this the question is whether the costs are greater than the benefits. If a new entrant can manage this efficiently they could disrupt the the current status quo. Do you want to chat about this further?
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After supporting the retailCURe credit union to launch through PRA and FCA compliance to launch their services to the retail industry. Now looking for the next challenge. In the identity, payments and...

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