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One penny solution to mobile payments conundrum

Why aren't retailers jumping en masse aboard the mobile payments train? Well, there is no gravy on it, the train is not leaving the station yet, and it might even be cancelled.

It all boils down to "what's in it for me?" As a retailer, I am hit with the same charges no matter how card-linked payment is done - contactless (card or mobile), QR or telepathy. Why incur extra expense to get little or no added value (arguably, contactless payments are quicker, yet transaction time is not the main speed bottleneck at the check-out).

How can that problem be solved? "Simples!", as my famous namesake put it. Offer retailers 1% flat fee on all transactions below £5, with one penny as the minimum charge.

On top of that offer them free EMV readers and act as the acquirer for all other transactions too. That's an offer which few retailers would refuse - handling cash costs them more.

It will then be the retailers and not the banks et al who would be reminding consumers that "you can pay with contactless".

Why hasn't that been done yet? Main reason - none of the existing card schemes are offering corresponding rates. That means an alternative transaction routing must be used, to take the funds directly from the consumer's bank account. There is a company that works on that. I wonder whether they roll out sooner than the card schemes smell the danger and react. We'll see...

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Comments: (9)

A Finextra member
A Finextra member 08 May, 2013, 22:35Be the first to give this comment the thumbs up 0 likes

I am pretty sure starbucks must be making money on their scheme - and I am sure other merchants will follow suit eventually.  It will be interesting to see how WEVE will change the dynamics and maybe stimulate consumer demand for more services.

A Finextra member
A Finextra member 09 May, 2013, 09:27Be the first to give this comment the thumbs up 0 likes

It was another company that I meant there. As for Weve, I don't think they are instrumental to the success of mobile payments in the UK - they operate within the constraints of the current penetration of NFC-enabled phones (or NFC SIMs), i.e. consumer side of the equation.

It is still an open question whether an NFC-enabled phone is a better form factor for mobile payments compared to a plain vanilla contactless bank card.

In either case, enabling consumers with the means to pay is just a (small) part of the story. Making consumers USE that funcionality is a different matter altogether. And then there is an issue of "what's in it for me", as covered in my blog post.

Philip Harrison
Philip Harrison - UK / Europe / Russia - London 09 May, 2013, 11:11Be the first to give this comment the thumbs up 0 likes

...Telcos are generally 'dumb pipes', despite their efforts to insert themselves into the payments value chain....

...the card schemes have a vested interest in resisting any downward pressures towards a 1p transaction charge....

...to make mobile payments ubiquitous, what we will see is innovation from key players who are already connected to every bank, merchant and consumer in the country....very few organisations match that description....watch this space...

A Finextra member
A Finextra member 09 May, 2013, 11:17Be the first to give this comment the thumbs up 0 likes

Good comment, Phil.

The "1p" economics are simple: right now, consumers use cash to pay for low-value purchases. None of the payment ecosystem players see any profit from those transactions (not to mention cash-related costs incurred by the retailers). From that perspective, even one penny is better than big fat zero... After all, the true "hard cost" of processing transactions these days is extremely low.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 09 May, 2013, 14:42Be the first to give this comment the thumbs up 0 likes

Dwolla is already doing this. It actually charges zero fees for transactions below US$ 10. While the attraction to merchants of such a service is self-evident, I haven't been able to figure out what's in it for the consumer. After all, with credit cards, consumers get deferred payment and rewards, which they don't with Dwolla / equivalent.

A Finextra member
A Finextra member 10 May, 2013, 18:41Be the first to give this comment the thumbs up 0 likes

Benefit to the consumer: you can use your card to make low-value purchases. In the UK, for example, the minimum card purchase value is £5.

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Dwola is different: like "Pay with Square", they rely on a rather cumbersome customer identification. Using a token (e.g. contactless card) offers ubiquity and speed.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 May, 2013, 19:32Be the first to give this comment the thumbs up 0 likes

As far as I know, card networks don't permit any floor limits for credit card acceptance even while individual merchants openly flout network rules by setting their own limits. I've actually experienced one merchant accepting credit card payment for GBP 3 and another one denying it for GBP 20. A generic GBP 5 floor is news to me.

A Finextra member
A Finextra member 10 May, 2013, 19:41Be the first to give this comment the thumbs up 0 likes

It's not a "hard" rule indeed, but rather a "common practice".

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 May, 2013, 19:57Be the first to give this comment the thumbs up 0 likes

Uh oh, in that case, what's to prevent retailers from extending the same "common practice" to this new method of payment? I've always found that retailers want to have their cake and eat it too. Therefore, I don't think a 1p + 1% transaction fee alone will persuade retailers to accept this new MOP or that, when it comes to retailers, anything is that simple. 

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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