Here are some thoughts on big actions that industry incumbents could take to strengthen their positions and the U.S. payments industry. What do these ideas have in common? First of all, they are infrastructural or market-wide. Secondly, they all ask one or more incumbent constituencies to bite the bullet – and accept some reduction of current revenue (aka “cannibalization”) in order to secure a stronger future position. Can they do it? Christenson talked about “The Innovator’s Dilemma” – maybe this is the “Incumbent’s Challenge”.
Rethink CNP
The card networks could issue new rules specifying secure “card not present” transactions, with liability protections and interchange close to point-of-sale parameters. Could apply to cloud wallets but also to “card on file” transactions which meet certain card-network-specified standards.
Dongles for All
Card issuers – credit and debit – could distribute mobile card acceptance “dongles” broadly to their customer bases. After all, it’s just a way of getting deposits in, right? Card networks could support with rules and interchange structures to support P2P and other domain usage.
Commercial Card Economics
The card networks are getting shut out of the serious B2B opportunity – particularly in cross-border payments – with unrealistic interchange levels. Drastically lower (and capped!) rates could open up much larger opportunities.
UPIC for All
Banks in the United States could support a universal account-aliasing system that would be used for all domains (B2B, P2P, C2B, etc.). The Clearing House’s old “UPIC” scheme is a good example – Australia’s BPAY system is even smarter.
Faster Payments
Banks could create a real-time, broadly used system similar to systems in place or in implementation around the world. Faster, better, cheaper – more of my thoughts here.
Dollar Chip?
Speaking of incumbents, maybe the Federal government could issue digital money? Canada’s already thinking about it (see: MintChip).
What do you think? Let us know.
As a founding partner of Glenbrook, Carol has offered clients over 25 years of experience in product, marketing, and strategy development with leading financial services providers in both wholesale and retail financial services. She is a co-author of the book “Payments Systems in the U.S.” Before founding Glenbrook Partners, Carol was a managing director of the Global Institutional Services division of Deutsche Bank, in charge of marketing, client online services, and Internet development.
Carol began her career as a corporate lending officer for large multinationals at both Bank of America and Citibank. During her time at Visa International, Carol founded and managed Visa’s European product-development office, where she led a series of electronic-commerce and chip-card projects designed to bring European banks online. Carol formally retired from Glenbrook in June 2020, but remains important to the firm as both a friend and advisor.