A month ago, when I read this news item on Finextra about ISIS ditching Discover and deciding to tie up with Visa and MasterCard, something didn't sound right. After all, creating another payment network seemed to be the raison d'être for the formation
of this company. And, since it had the backing of Verizon Wireless, AT&T and other leading American mobile network operators, ISIS' mission didn't seem so far-fetched.
When I read this follow up post on GigaOm yesterday, it appeared as if American retailers are contradicting themselves or there's more to
the story than we've heard so far.
On the one hand, American retailers are protesting vehemently to regulators (Dodd-Frank-Durbin et al) that the Visa/MC payment network oligopoly is exerting a very tight stranglehold over them. So tight that they can't decline credit / debit cards
from customers despite having to cough up what they term 'exorbitant' merchant fees that range from 1% to 3.5% depending largely upon the type of card, merchant and merchandise. All over the world, they go to great lengths to dramatize their 'high costs' of
card acceptance: Home Depot's 'our merchant fees exceed our employee healthcare costs' and the Indian Future Group's 'our merchant fees are as much as 50% of the profits we return to our shareholders' are two examples that come to my mind.
On the other hand, when ISIS goes to them with an offer to set up a spanking new alternative payment network, are they overjoyed that finally someone has come to release them from the clutches of Visa/MC? No. According to ISIS, retailers and merchants say
they're not interested. This sounds quite contradictory - unless ISIS was (a) proposing merchant fees that were higher than Visa/MC's, or (b) insisting upon an exclusivist payment network that required retailers to break off with Visa/MC.
Something tells me it's the former: ISIS might've realized that it wasn't feasible to establish a widespread payment network from scratch and charge lower merchant fees as compared to Visa and MasterCard who've been around for decades.
On a related note, the last couple of years have seen the launch of scores of alternative payment methods that are based on ACH, FPS, SVP, TELCO BILLING, and so on. I'm assuming that the 30% merchant fees charged by Boku, Zong and other Gen Y Mobile Payments (that
use MNO billing and deliver a great combination of convenience and security) are an aberration. But, I'm curious to know if readers are aware of any alternative payment methods that are free for the customer / payer and cost less than Visa/MC for the merchant? (Cash
and checks don't qualify!).