Why hasn’t a significantly cheaper alternative to payment processing emerged?
Payments
Asked by Question Bot09/Feb/20121 answer
1 Answer
F
Faisal Khan
Answered 09/Feb/2012
There are very many payment systems being developed and being rolled-out in the world today. The main issue is of traction. Traction leads to trust and trust to usage.
The traditional giants like Visa and Mastercard have enormous clout and influence on financial institutions with regards to their product, its usage and the accompanying security umbrella that they offer. Remember, they have had a few decades worth of head start.
The Internet has been a great game changer for new payment system companies. As Dror Matalon cited, Dwolla is one fine example, there are many others like AliPay (Paypal's nemesis outside of US), Venmo (another promising startup slowly gaining traction, see www.venmo.com), Square (granted, Square still piggy-backs on the Visa/Amex/MC network), etc.
You can have the best payment system in the world, but if no one is using it - it is worthless. Companies today strive for the traction: number of transactions per day, the average daily transaction values, customer base, etc.
VISA processes 10,000 transactions per second! Value wise, they probably do more in one hour, than say what Dwolla would do in a month (VISA, averages about 130 Million transactions per day). Google Checkout, Amazon, Facebook (Credits), etc. are all emerging payment systems, and can/would represent a serious threat to the large traditional payment systems.
The ACH system within the US is antiquated in comparison to what's prevailing in rest of the world. Had there been a cheaper way of doing an ACH transaction in real-time, you can bet your bottom Dollar, you will suddenly see a boom in payment system companies offering alternatives that are much more economical than what is prevalent in the market today.
Then there is Apple, don't discount Apple. I have had this feeling for a long time, that Apple some point in time will step into the payments space. Facebook is one such participant, that has been sitting on a closed eco-system of Facebook credits. If there were tomorrow the ability to pay each other (Facebook users) money, that can be loaded and unloaded via any traditional financial instrument (credit card, debit card, ACH, Internet cheque, etc.) you would suddenly see what would undoubtedly be the world's largest financial institution by number of users.
Don't forget, there is a world outside the US, which too is developing their own payment system (Alipay is the best example I can cite, predominantly in China). M-pesa in Kenya, EasyPaisa in Pakistan, UnionPay (which is slowly coming up everywhere).
End game: its all about traction.
The traditional giants like Visa and Mastercard have enormous clout and influence on financial institutions with regards to their product, its usage and the accompanying security umbrella that they offer. Remember, they have had a few decades worth of head start.
The Internet has been a great game changer for new payment system companies. As Dror Matalon cited, Dwolla is one fine example, there are many others like AliPay (Paypal's nemesis outside of US), Venmo (another promising startup slowly gaining traction, see www.venmo.com), Square (granted, Square still piggy-backs on the Visa/Amex/MC network), etc.
You can have the best payment system in the world, but if no one is using it - it is worthless. Companies today strive for the traction: number of transactions per day, the average daily transaction values, customer base, etc.
VISA processes 10,000 transactions per second! Value wise, they probably do more in one hour, than say what Dwolla would do in a month (VISA, averages about 130 Million transactions per day). Google Checkout, Amazon, Facebook (Credits), etc. are all emerging payment systems, and can/would represent a serious threat to the large traditional payment systems.
The ACH system within the US is antiquated in comparison to what's prevailing in rest of the world. Had there been a cheaper way of doing an ACH transaction in real-time, you can bet your bottom Dollar, you will suddenly see a boom in payment system companies offering alternatives that are much more economical than what is prevalent in the market today.
Then there is Apple, don't discount Apple. I have had this feeling for a long time, that Apple some point in time will step into the payments space. Facebook is one such participant, that has been sitting on a closed eco-system of Facebook credits. If there were tomorrow the ability to pay each other (Facebook users) money, that can be loaded and unloaded via any traditional financial instrument (credit card, debit card, ACH, Internet cheque, etc.) you would suddenly see what would undoubtedly be the world's largest financial institution by number of users.
Don't forget, there is a world outside the US, which too is developing their own payment system (Alipay is the best example I can cite, predominantly in China). M-pesa in Kenya, EasyPaisa in Pakistan, UnionPay (which is slowly coming up everywhere).
End game: its all about traction.