Digital Transactions Authoritative, insightful and timely information for payments professionals
It’s July, and what with the summer doldrums having set in, we thought it might be timely to review a few principles we’ve learned over the years about digital transactions. Some of you may well disagree with any number of these, and if you do, I hope you’ll email me at john@digitaltransactions.net. Send me your own list, and we’ll print the best of them in a future column.
1. Transactions carry a cost. There’s considerable investment behind all the networks, processors, and gateways that make sure authorizations and settlements happen accurately and fast. Add in technology for tokens and cryptograms, which is coming to protect card data and authenticate users, and you can see why electronic transactions aren’t anywhere near free. You can argue whether interchange is the best way to price transactions, but to maintain that pricing should approach zero is pointless.
2. Regulation is, at best, inefficient. Banks and merchants often resort to legislation to stop or change what the other camp is up to. Merchants most notoriously did this with the Durbin Amendment, which puts a ceiling on what big banks can charge for debit card transactions. But banks likewise turned to legislation and the Federal Deposit Insurance Corp. some years ago to stop Wal-Mart from chartering its own bank. Both moves were ill-advised. As with all pricing regulations, Durbin has yielded a string of market distortions and unintended consequences. Meanwhile, the competition banks feared from Wal-Mart has simply arrived in different guise, and probably with more potent effect.
3. Consumer adoption is critical, but hard to engineer. No payments novelty can succeed without consumer support. Starbucks’s private-label wallet works because an overwhelming number of customers enthusiastically use it. But that’s an exceptional example. We often forget that consumer adoption is a long-haul proposition in e-payments. Graybeards will recall the long years it took just to get bank customers to use ATMs, and then to use debit cards at the point of sale.
4. Faster payments aren’t optional. Consumers accustomed to same-day delivery expect the same service when it comes to payments. The 40-year-old automated clearing house network has been trying to speed up settlement time from next-day to same-day, yet big banks torpedoed the proposal in 2012, fearing the impact on lucrative wire transfers. NACHA is trying again. Let’s hope it succeeds this time.
5. Digital currency isn’t real currency—yet. A real currency is a store of value and unit of account. On the first score, Bitcoin isn’t quite there. Companies that accept it, wary of its volatility, exchange it instantly for dollars. But its advantages will buy it time, and time is all it needs.
John Stewart, Editor | john@digitaltransactions.net
