The example about mobile phones and payments in Africa is a case in point here. David Evans & Richard Schmalensee argue that the real revolution in the payments industry is not going to come from improving the basic payments transaction between consumers and merchants but from new technologies and business models that have their origins outside the traditional payment cards industry.
For a start, the legacy platforms of today’s credit and debit card schemes do not lend themselves to encourage external development and will risk losing out to new payment services that easily integrate with modern platforms open to external developers (cf. Google, payPal, social networks, web 2.0).
The incumbent schemes with their legacy infrastructures share a weakness in the sense that they are not set-up to allow developers access to their core infrastructure. Cloud computing will also promote payment innovation that benefits open networks.
Putting the user or customer in charge is also evident in the way in which people will expect to pay: more push instead of pull. And if it is pull, then it is more likely to be the cardholder, who, at the point of sale, decides what payment application to use.
Also, part of this trend is that users will decide with what devices they access the network, i.e. how to pay, and this will lead to a blurring of the line that divides CNP from POS. In a way this is already happening with payment services such as Billmelater and Paybycash.
The black/white distinction between credit/debit/charge and prepay will disappear as well. Tomorrow’s scheme will be expected to offer a combination of these , if possible all residing on the same card/chip. Openness of platforms will accelerate this development.
Geographically, the domestic card schemes will not transform into one large European system; instead a more likely development is for several to emerge, each with its own strong and weak segments, but none of them likely to be as dominant in one particular market such as a CB in France today or Bancontact in the low countries.
Finally, the revenue base will shift towards transactions. Interchange fees and annual fees will not be where the critical mass of the revenue comes from. Instead, the type of payment and the contextual value add around it (in other words, data) will generate revenue.
Processors themselves will see a stronger argument for standardisation as they begin to process across multiple payment networks as a result of this convergence of direct debit, card and credit transfer payments.
And this reinforces the view that processors need to unbundle from schemes and become platform providers for different payment instruments.
