Interchange

Interchange is a word that’s talked about a lot in the payments industry. If you didn’t have to pay interchange fees, what would your business spend the money on? At its most basic, interchange is the fees businesses pay to credit card processors to swipe your credit and get paid – or the cost of moving money. Businesses are sick and tired of paying high fees and getting very little in return. Customers are sick and tired of seeing prices of items tick upwards as businesses are forced to charge more to cover the cost of interchange.

Businesses spend an exorbitant amount of money each year to accept credit cards – to the tune of $50B. Businesses could reinvest the money they’ve been spending on interchange to better connect with customers, enhance marketing initiatives and grow faster and smarter. Just imagine for a second the economic stimulus the country would get if all that money was put back into the business to drive growth, or back into the pockets of customers to lower costs.

In the past 30 years, interchange fees have mainly gone in only one direction: up. Luckily, things are starting to change, and I think we’re going to start seeing interchange being driven down. The days of a 3 -or 4-percent interchange rate are beginning to look numbered and here’s why:

Competition

There are nearly 200 players in the mobile payments space, with more entering daily. New opportunities are providing businesses with alternative payment options that are outside of Mastercard and Visa’s clutches. While there might be 1,000-plus credit card processing companies, they’re all based on the Mastercard/Visa rails, which provides a fixed floor. But not so with many of these new payment options. As such, traditional methods of payment (cash, credit cards) are facing an increasing amount of competition, and merchants are starting to pay attention.

It’s unlikely that cash and credit cards are going away anytime soon, but it only takes a small shift in volume (maybe 5 percent) for the card issuers to start paying attention. There are a number of ways for them to react, but if history is any guide, one of them will be to start lowering their prices. Alternatively, they could find ways to offer more value to their merchants. Either way, competition is offering merchants new ways to accept payments, and this will lower fees over time.

Innovation

The second thing driving down costs for merchants is rapid innovation, and like a good deal of innovation these days, much of it is centered around mobile. Mobile payments are starting to gain significant traction among consumers, accounting for $640M in 2012 and expected to have grown by an additional 234 percent in 2013.

QR codes, NFC, peer-to-peer payments, card emulation –  the list of new technologies trying to disrupt the payments space goes on and on. These new alternatives are challenging the current payments system and shedding light on the opportunities for businesses. This innovation is beneficial in two ways. The first, as discussed above is that more competition will naturally drive costs down. The second is that alternative payment options are focusing on value beyond the transaction.

There are new payment options out there that provide tangible information, such as data analytics, which help companies drive sales and increase revenues. New options are allowing small businesses access to the same technology and analytics that were previously reserved for big-box retailers or e-commerce sites only. These additional value propositions not only help businesses, they also provide new ways for payments companies to monetize, removing the need for them to make all of their money from interchange. With two (or more) revenue lines, lowering interchange is suddenly a lot more feasible.

Legislation

The Durbin Amendment is designed to introduce competition in the debit card processing network and limit fees for businesses. For all of its unintended consequences, Durbin legislation is actually helping to drive down interchange; it’s opening up competition for non-card-brand network players and lowering debit card fees. While it is certainly rife with controversy, this amendment is opening up new ways to move money that will, over time, contribute to a less expensive payment processing ecosystem.

Merchant demand

Business owners are smart and savvy. They pay attention to trends, focusing on finding new ways to set their business apart. Business owners are also conscious of ROI, and how much they’re spending to attract and retain customers. They understand there is some cost to accept payments, but are becoming more and more frustrated at the high swipe fee costs from traditional credit card processors and minimal return for those fees.

Businesses are looking to new, innovative solutions to provide more than just payment processing –  they want to understand and better connect with their customers. In short, merchants are ready for a new payments ecosystem, and where there’s this much demand from a group this big and influential, a solution can’t stay away for too long.

Interchange rates are not going away entirely in the near future, although it will happen eventually. A lot of powerful wheels are in motion to significantly reduce the interchange rates that merchants currently pay. Right now the impact might be small, but it’s growing quickly. In a few years, 3- to 4-percent interchange could be relegated to the same bit of history as $1.99 international phone calls.

Posted in Credit card Processing, Electronic Payments, Financial Services, Gift & Loyalty Card Processing, Internet Payment Gateway, Small Business Improvement Tagged with: accept credit cards, accept payments, alternative payment, credit card processing, credit card processors, credit cards, debit card processing network, e-commerce, interchange, interchange fees, interchange rates, lowering debit card fees, lowering interchange, Merchant's, Mobile Payments, payment processing, payments, payments industry, swipe your credit card

Point Of Sale: Mobile CRM’s Next Battleground

Some brands have managed to pull themselves together to mobilize their online sites…that’s design them to be visually friendly to mobile users.

Earlier this month the quick-service restaurant debuted a new item on its menu…the Smoke Brisket Sandwich…with a campaign that involved a number of social media components. Included among those were a game that awards points based on a customer’s tweets, the online challenges he or she wins and the photos uploaded to Instagram.

It starts with a purchase of the sandwich at an Arby’s outlet. When the customers receives her receipt she takes a picture of it and uploads it to  mobile site PunchTab created for the campaign.

What sets this campaign apart from many others is that it is coordinated at the point of sale.

For this campaign, PunchTab created  mobile Web onto which Arby’s customers upload a receipt. When users make a purchase, they can take a picture of their receipt and submit it via the mobile website. From there, points are dispersed, the players advance…and hopefully, return to Arby’s for more purchases, err, points.

Helping Business

There’s definitely been a trend in the POS and payments industry to add value offerings by helping businesses better understand their customers. This trend is built on the wealth of transactional data being collected by POS and payments companies, and the goal is to present simplified consumer behavior analyses that can be used by merchants to generate more revenue.

Looking ahead, more and more retailers will understand the value that capturing this customer data can unlock for this business, and will put the software in place to tap into a customer’s purchase history and thus their preferences.

Now the focus is on salespeople delivering a personalized experience to customers. The next stage, will focus on extending to individual customers the inside track on new products that will appeal to them and complement or replace things they have previously purchased.

Pimping Out The POS    

Engaging with the customer at the point of sale is hardly a new idea. It certainly is an established practice in traditional brick and mortar operations…think credit card solicitations and offers for loyalty points and cards…as we all as e-commerce sites, where a customer is usually presented with several offers before the checkout is complete.

Now CRM is making its way into the mobile POS and customers are finding that there are a number of unique benefits to the model.

In the case of PunchTab, it ties the receipt-scanning functionality that doesn’t require an app…not to mention several other benefits to the system.

For example, Marketers get greater insight into purchasing behavior because a receipt is usually involved. Consumers are right there and thinking about the campaign…which they wouldn’t necessarily be when they got home to go online, and it is relatively easy system to set up.

Arby’s for example, has 40 POS systems and because it is a franchise, it requires coordinating with multiple owners. For them, mobile is the best and easiest way to engage with customers at the point of sale.

Real-Time Offers         

Other companies…such as Groupon with its Breadcrumb mobile app…are adding even more advanced CRM capabilities, such as reporting at the mobile point of sale.

It is a growing trend for all mobile applications and most especially apps in the mobile POS to bring more CRM capabilities into their service platform.

Eventually, some of these CRM-infused mobile POS systems will be able to make offers in real time to customers based on their purchase at the moment and accumulated knowledge about the preferences of other customers that make similar purchases. Example it might be noted that in 20 percent of all purchases of a particular type of coffee the customer also purchase a biscotti, then the server can offer up the option as a reminder for purchase/order.

The example assumes the mobile POS system has access to customer data about purchase and preferences…which is somewhat rare now, but a trend gaining momentum.

Posted in Credit card Processing, e-commerce & m-commerce, Electronic Payments, Internet Payment Gateway, Mobile Payments, Mobile Point of Sale, Point of Sale Tagged with: app, awards, brick and mortar, crm, customers, data, design, franchise, functionality, mobile, mobile pos, mobilize, online, payments, payments industry, point of sale, points, POS, purchase/order, purchases, receipt, receipt-scanning, restaurant, retailers, revenue, social media, transactional, uploaded, users, web, website