Sunday, September 14, 2014

Pricing the Push Model; Putting Apple Pay into Obsolescence; Same Thing

The push model (payer directs financial institution (FI) to pay; payee does not request payment) has many price options which make income from interchange fees look like the punk change its fast becoming.  As governments move to cap interchange fees (the MasterCard decision in Europe and the Durbin Amendment in the US) FI incentive to create a new billing structure that cuts out the transportation middle men and keeps most fees in-house increases. The Push model will do just that.

If payees have a common registry which FI access to route push payments then payer (nee Issuer) FI charge consumers various types of fees consistent with transaction volume and value. Since Regulation E does not apply (Reg E forbids payer liability for pulled payments) FI can charge payers for insurance for unauthorized transactions, or charge a set fee for a capped number of transactions over a set time period.

Consider each FI account world wide as a potential retailer number. Compare that number with strictly retail accounts receiving payments from payment card activity. Since the retailer subset is clearly quite less than the complete set of all accounts, the potential fee payer pool is quite less and therefore cannot dilute fees in a reasonable manner. The push model changes the number of fee payers to all with any kind of FI account and so the fees can be significantly less and still increase FI income considerably. FI also remove themselves from the clutches of anti-trust warriors because they will compete for accounts by changing the fee structure for various types of customers.

Retailers themselves without the overhead of payment origination infrastructure may offer to pay some or all of consumer fees to attract bargain hunters. If a common standard exists for a data protocol (tailored ISO 20022 anyone) from personal electronic devices (PED) to FI then a total amount can be diverted to various parties including fee payees and tax authorities. Signs at the checkout lanes may offer discounts for specific payer FIs because of deals struck by regional, national, or local FI.

In short retailers will stop accepting payment cards because of the expense and the race to get payer money by striking deals with large and small FI going after various segments of the payer business. Apple Pay will be obsolete in a few years and EMV compared unfavorably to the beta max video model.

Next Blog: Payment Homeomorphisms

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