I eat at the same diner every night I make it home past 9 pm – primarily because it’s the only one open. So imagine my surprise as I waltzed over to the cashier to pay the other day and they refused my credit card. The reason?
“Merchant fees are too high!”
This got me thinking. If retailers yelp at the idea of paying 1% over say competitive cards’ merchant fees, how on earth will we realistically look at the carrier business model of taking on average 50%? That’s not a typo either. Think about that for a second. You own a small book store. You sell a copy of Smart Mobs for $20. You automatically would give $10 to the credit card company that the book was purchased on for processing the transaction. Does that seem fair?
This was the question posed to the audience of last year’s iHollywood Forum by CEO of Billing Revolution, Andy Kleitsch. The response is pretty simple. Merchants will refuse mobile payments to cover “off deck” purchases for as long as carriers decide to charge the astronomical and unfair practices associated with processing.
So what’s the solution? Well besides an all out Coup d’état against on-deck mobile payments, premium SMS, etc., it’s going to take a company like Billing Revolution to not only provide a simple-to-adopt service for using your phone as a wallet, but to create enough advocacy amongst its audience to build the trust necessary for retailers to adopt the service as well.
And that’s not as easy as it seems. American Express, Visa, Discovery, Master Card – they spend hundreds of millions of dollars on building the very relationships needed for consumers (and subsequently the merchant) to feel completely secure in pulling their credit card from their wallet to pay for their purchases.
I admire Andy’s resolve in fighting an uphill battle. Andy recently hired a friend of mine used to fighting similar battles in the mobile space so I know he’s in good hands. Ultimately however, I’m of the personal opinion that these billing infrastructure companies will need to go one of two routes to ensure success:
1. Private label their solution with a carrier for off-deck transactions. This is utopian since the carriers would end up losing 40% of their revenue by endorsing a company like Billing Revolution. The upside however is that with more aggressive merchant fees, they could compete against the established credit card companies for consumer spend, further evolving the carrier business model.
2. Partner with a credit card company for a fully integrated white labeled solution. To have the Visa or American Express logo on your phone is incredibly empowering. To have anything less, even a Paypal icon seems a difficult sell to the average consumer.
The mobile world is changing, which is the good news. We used to joke while at Simplewire that it’s only a matter of time before we could use our phones to purchase high-ticket items. I believe we’re one step closer to reality.