Some Radical IT Ideas From An Exasperated IT Exec
Written by Todd L. MichaudMarch 18th, 2010
The payment industry is ripe for a new disruptive technology to come along and tip the banking world on its head. For too long, the banks have been living off a protected revenue stream from interchange that pays for a bloated and archaic system. Why is it that Google can offer a 2-hour high-definition movie streamed to your PC for free but the average credit card transaction ($100) carries an interchange fee of almost $3? The problem, opines Franchisee Columnist Todd Michaud, is that most innovation is happening at the consumer and retail end of the transaction.
What would happen if we turned NFC on its head? For example, rather than the phone making a payment to the POS, it makes a payment to the restaurant's bank in the cloud. What would happen if the restaurant deducted the cost of lunch from Facebook credits? What if the guest could earn a free lunch by promoting the brand on Twitter? What if restaurants gave guests their menus on an iPad? What if that menu was customized to each diner’s likes, dislikes and allergies? What about a restaurant booth that has a video-conferencing setup that allowed to people to have lunch together without being in the same restaurant?
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March 18th, 2010 at 12:16 pm
I can’t imagine a scenario where you could pay for something using facebook credits. In order to authenticate with facebook especially, you don’t even store credentials, just oAuth. You’d have to ask the customer each and every time to input their username/password? That’s surely not faster or easier.
i know that tasti d-lite first, and now starbucks (and who knows who else down the line) have started rewarding their customers for social network posts (especially with foursquare).
March 19th, 2010 at 7:24 pm
Understand the exasperation but you need to understand more about the underlying challenges in order to come up with viable solutions. The article you referred to in wired was ridiculously off base written by someone who obviously knew nothing about payments. PayPal would be worse for your restaurant than what you take today because the transaction would be considered Card Not Present and the Interchange would be higher.
March 22nd, 2010 at 1:12 pm
Three points I would like to make. First, no merchant is required to take credit cards. There are plenty of vendors that will install ATM’s at the merchant location to allow the customer to buy cash if they didn’t notice the “cash only” sign and this will be at no cost to the merchant — while I don’t like this option, it is available to merchants. Instead of the ATM route, I recommend to merchants, if your credit card costs are affecting your bottom line that much, either find a new bank (the example of 3% is high) or raise your prices.
Second, using the Google example, Google makes money from advertisers and paid commercials. Do you really want your clerk or your customers to be bombarded with ads just to process a credit card transaction? Or just as bad, would you tolerate ads being displayed to the customer or printed on receipts, possibly to your competitor? This is how Google pays for the free stuff mentioned and I don’t see brick & mortar merchants embracing these cost cutting measures.
Third, go to Google and search the following key words: “paypal frozen funds”
March 25th, 2010 at 9:28 pm
Todd Michaud asks why a $100 credit card transaction carries an interchange fee of almost $3. In a word: Risk. The issuer and acquirer banks involved in credit card transactions each assume part of the associated risk. For the issuer, the risk is that the cardholder will not pay the bill, or that the card is fraudulent, and the issuer also floats a potentially interest-free loan until the bill is paid. The acquirer risks that the merchant has sold bogus or defective goods, or will fail to deliver paid-for products or services, and then go into bankruptcy or just disappear into the night. For assuming those risks, the issuer and acquirer split the interchange fee.
Todd also asks “What if restaurants gave guests their menus on an iPad?” I’m going to go out on a limb here and say those restaurants will end up buying a lot of iPads, to replace the ones that disappear each night, and then go bankrupt.