Until recently, the worlds of card payments and non-card (account-to-account/ACH) payments moved in different orbits, but recent events suggest that gravity is now pulling them together. Will they simply move closer together, or will a collision result in one absorbing the other, or both fragmenting to create a new hybrid?
The first convergence event was Mastercard’s acquisition of VocaLink. I speculated at the time that the main motive for the acquisition was for Mastercard to exploit VocaLink’s Immediate Payments processing technology, and the Zapp overlay service that enables ecommerce and m-commerce over Faster Payments rails. This has since been confirmed by Mastercard’s CEO Ajay Banga who said VocaLink “is the best asset in this [immediate payments] space from … a technology standpoint”.
The second event was Visa’s pact with PayPal, whereby Visa offers a more favourable fee structure to PayPal in exchange for PayPal not steering customers away from Visa and towards more cost-effective account-to-account payments. This cosy arrangement hasn’t met with universal approval – PayPal shares fell 7%, with shareholders fearing that the company will suffer higher costs as a result. Mastercard has now jumped on the bandwagon, and the firm is having a “constructive dialogue” with PayPal, according to the Mastercard CEO.
A third event is the announcement that the US ClearXchange network has signed deals with Visa and Mastercard to extend the reach of the network to all debit accounts using the Mastercard Send and Visa Direct services. This echoes the decision of the UK’s Paym mobile payment system to support the Faster Payments and the LINK card rails.
Hybrid, real-time payments model
As ‘plastic’ cards are increasingly dematerialised into tokens held in digital wallets, the concept of a ‘card’ network becomes less and less relevant. We should think instead of the capabilities of payment networks: real-time, low latency and secure, carrying tokens that link to an underlying account (current or credit), and different types of authentication credentials – PIN, biometrics and so on.
The schemes are actively embracing this change. Mastercard’s recent rebranding removed the capital ‘C’ from the name, which “placed the emphasis on card payments, yet the company’s focus is increasingly on digital payments”. It’s likely that the ‘Masterpass’ digital brand will become increasingly prominent over the coming years.
It does seem that we’re moving towards a hybrid, real-time payments model, drawing elements from today’s card and alternative payments worlds. Payment service providers will increasingly need to take a holistic view of low-value payments, pulling together the salary, benefits, supplier and biller payments that have traditionally been in the account-to-account world, and the ecommerce and m-commerce payments that have been the preserve of card payments. The underlying rails become less relevant, and the focus moves to the flexibility of the application processing the payments and its ability to handle the various flows, message types and credentials used by different payment types. This is the key to allowing payment service providers to focus on the customer proposition and experience that truly differentiates them from their competitors.
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