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Innovation in Financial Services

Innovation in Financial Services

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

Next victim? iZettle et al.

25 July 2013  |  3515 views  |  0

Card fees are to be capped in Europe. There is a lot of debate around that decision, and the jury is still out as to the mid- and long-term implications. For example, although Amex is not directly affected by the capping, they can be put under (a lot of) pressure too, by the retailers.

However, there is another (major) casualty in the making: iZettle et al...

iZettle has already started tightening the noose around their neck by lowering processing fees. By doing that they are attempting to fight off competition and win over customers. However, their business model is based on subsidizing the cost of the dongle (which they buy from Miura) on Day 1. If their profits are slashed, first voluntarily and then by the card fees cap, the house of cards will tumble as it will be taking them longer and longer to reach the breakeven point. Surely, iZettle, mPowa, Payleven and the rest of them are heading overseas to hedge their risks, but that's not going to help much.

mPOS market is over-saturated, with zero true differentiation (9 out of 10 players are using the same - repackaged - device...) With more dongles hitting the market, it doesn't take much to start offering payment processing services to merchants - mPOS dongles are already becoming a commodity, with prices dropping below $50.

Moreover, processing fee are already heading south, as shown above - EU is not an outlier, as some believe, but the first swallow. We live in a small connected world, and it's only a matter of time before the card schemes and the issuers get the squeeze elsewhere too (who likes banks these days?..) The situation will only get worse. 

What does all of that mean? Several things (in my humble opinion):

1. Prepaid cards will proliferate, becoming quasi-bank accounts. We still need to keep our money somewhere, right? If banks start charging (high) fees, where will consumers go?..
2. Payments will be an "excuse" to get customers onboard; to win the game, the service providers will have to offer other value added services (transit, in-store location positioning, tickets, merchant-led deal, etc.) - think of "unlimited SMS" offers by mobile operators to make you sign up, they then make money on other services.
3. As payment rails become more accessible and commoditized, payment form factors will gradually change. Even cards will undergo a paradigm shift - think of a single uber-card that will be used as a universal token to represent any source of payment consumer has.

Exciting times lie ahead. Mobile revolution has not even began.

TagsMobile & onlineInnovation

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