
Why Killing Cash is Key to MasterCard’s Competitive Strategy - bavcyc
http://knowledge.wharton.upenn.edu/article/mastercard-competitive-strategy/
======
milesf
One word: Wikileaks.

MasterCard refused to process donations: [http://observer.com/2010/12/card-
declined-visa-mastercard-re...](http://observer.com/2010/12/card-declined-
visa-mastercard-refuse-wikileaks-donations/)

Whether you agree with Julian Assange or not, the fact that democratically
elected leaders in a democratic country tried to force a democratic society to
_NOT_ support a cause by telling MasterCard "don't process these donations"
was an incredibly chilling event.

~~~
xux
How is that different from freezing someone's assets?

~~~
bediger4000
It was sort of under the table, not done via regular, publicly visible means.
It's prone to abuse. Asset freezing usually (always?) comes from a court
order, which is generally done in public, with arguments from both sides.

~~~
Canada
Often it is not. Funds are frozen without any due process whatsoever, or even
giving the account holder a specific reason. I know of instances where tax
authorities have simply seized accounts on their own authority without
sanction from a count. I know of instances where real estate has been seized
on the mere suspicion of Marijuana growing. Yes, due process is available to
remedy such wrongs... by suing in court for relief. Good luck with that if you
have no liquid funds to hire a lawyer. And your bank is foreclosing because
you can't pay the mortgage.

More and more, KYC means asking permission to spend your own money. Putting
all payment processing into the hands of a few middlemen is a dangerous
concentration of power.

It's sad that we make retailers eat a 3% gross tax on transactions in exchange
for bullshit rewards. In the end merchants just bill the costs right back to
us anyway. Individually we feel like we're doing well. We get flights or 1%
cash back. In reality we're buying these things for ourselves and we're
overpaying.

------
kimdouglasmason
I wish they would just be more honest and state that killing cash would give
them: 1\. A payment processing oligoply that would persist forever because of
regulatory capture and regulatory barriers to entry. 2\. A privileged insider
position when dealing with government, as all government control of payments
would be implemented by them. Imagine the current revolving door between the
fed, sec, treasury, and banks, but much worse. Think of all the political
enemies that could be rendered financially dead. 3\. The power to implement
negative nominal interest rates in deflationary scenarios, which is the dream
scenario of large banks and central banks everywhere, allowing them to steal
from savers in ALL economic circumstances.

It's a fascist (I.e. corporate state) control freak's dream.

The Japanese have been smart enough to stick with cash in their decades of
deflation. As it looks increasingly like a number of Western economies may
'turn Japanese', I hope those nations will follow Japan and stick with cash.

... and 1.5% of GDP (almost certainly overstated by an order of magnitude) is
a low price to pay to prevent a demonstrably criminal and corrupt banking
cartel from controlling all transactions.

~~~
bediger4000
In the USA, it's cheaper to process paper checks than it is to do credit and
debit card processing. Why? Because the US government does check processing.

The USA, as a society, made a huge mistake in letting private interests make
electronic money. The oligopoly issue is huge, as is the cost per transaction,
and the security issues of such a patched together Rube Goldberg system.

~~~
icebraining
_Why? Because the US government does check processing._

That does not follow. In my country, our main payment system is handled by
private banks and it's also cheaper than MasterCard/Visa (only 0.9%, with a
maximum of 1.5€).

~~~
bediger4000
Sorry, I should have written "the US government does check processing free of
charge". That makes a paper check purchase often have lower transaction cost
than a credit or debit card purchase, at least to the merchant.

I'm not sure what the legal status of charging the customer a different price
based on method of payment is in the US - for a long time, merchants couldn't
charge different prices based on what the customer used to pay. But now
occasionally you see the very oddly named "Courtesy Fee" for when you pay with
a credit card.

~~~
twoodfin
It's not directly a legal issue: Prior to Dodd-Frank, most/all merchant
agreements only allowed for a "cash discount". That is, when agreeing to
accept Visa or MasterCard, a merchant had to also agree to accept cards for
all transactions and charge the same price no matter the payment type,
excepting an option of a lower price for cash (but not for checks or debit
cards).

Dodd-Frank made such agreements illegal: All merchant agreements must now
include an option for the merchant to refuse credit (but not debit) cards for
purchases under $10.

Convenience fees are apparently a rat's nest of state laws, litigation
settlements and issuer policies: [http://www.cardfellow.com/blog/charging-
customers-a-credit-c...](http://www.cardfellow.com/blog/charging-customers-a-
credit-card-convenience-fee-at-check-out/)

------
ethor
Purely noble motives regarding removing cash from society, right? It
essentially gives international financial corporations oligopoly over
commercial transactions.

And for those of you that cherish privacy, imagine the tracking possibilities
in a society where commercial transactions no longer can be pursued
anonymously.

~~~
ethor
Also, the governmental opportunity to revoke non-desirable citizens the
privilege to make commercial transactions.

------
exo762
I pray for a day when this guys' power is torn away from their hands by
Bitcoin. World with Mastercard instead of cash is a distopian nightmare. Ask
Wikileaks.

------
debrice
So his argument is that it cost 0.5% to 1.5% of the GDP to have cash money...
I believe the current visa processing fee is 1.51% plus $0.10

~~~
ksec
Doesn't that depends on countries? Last time i heard the US credit card
payment system was some ridiculously expensive rate at 2 - 3%.

~~~
fennecfoxen
The US rate for credit card (and check card) processing is indeed very high!
The upside of this is that it makes a variety of financial firms (banks and
credit card companies) quite interested in issuing them. For instance, some
banks will offer no-fee bank accounts with direct deposit and a certain
minimum number of monthly check-card purchases (in lieu of requiring larger
minimum balances). Some providers will also explicitly send a significant
fraction of these fees right back to the customer as "cash back", airline-
miles, or similar rewards.

(The downside is obvious. The dynamics of the interplay are interesting. I
wonder if there are any good studies.)

------
tormeh
We actually had a debate about this in Norway; removing cash completely. Only
2.7% of all Norwegian transactions are in cash, anyway. In Norway I can go for
months without having any cash with me. Germany, where I live now, lives and
breathes cash, which was very shocking when I came here.

~~~
frik
True. Cash is still the primary payment method in central Europe (Germany,
Austria, Switzerland, etc).

With cash you always have the overview of how much you carry around in your
wallet. Cash is also a proven anonymous payment method. ATM are available
everywhere and usually free (no service fee).

On the other hand online payment (ebanking, paypal) is popular too (for online
shopping).

All payment methods (incl cash) come with some hidden fees and/or operating
costs. And all have advantages and disadvantages.

Let's hope that cash will survive for a long time to come.

~~~
mpweiher
"With cash you always have the overview of how much you carry around in your
wallet."

Also, when you spend, something is removed from your wallet.

------
DCKing
MasterCard's duopoly (with Visa) of all electronic payment systems in the
world is so well-known it is often used as the first example of such a market
in economics courses. "Legacy" payment systems such as cheques and cash are
being slowly replaced by systems very much controlled by MasterCard or Visa.

This is troublesome for two reasons.

The first is political; both companies are American. This gives the American
government way too much control over such critical infrastructure. Even if
they do not overtly mess with the system, they most certainly are passing all
this information on to their intelligence agencies. Even a single worthy
competitor from somewhere else would be a huge improvement.

The second is that it stifles innovation. Because of the lack of a well-
established competition, the only innovation these companies are interested in
is new products that make use of their existing infrastructure. Contactless
payments on mobile phones could have been reality five years ago, but MC and
Visa have to jump through several hoops and require special SIMs to have it
all run over the infrastructure they sell instead of the internet. And the
banks are happy to wait instead of innovating themselves.

I'm all for killing cash by digital means. But not if these two companies are
doing it.

~~~
zanny
Bitcoin called, its having beers with Dell atm and invited you over.

~~~
DCKing
What does the fact that I can pay with Bitcoin in a very narrow selection of
web shops have to do with the vast network of debit and credit card systems
that I can pay with _anywhere I want_ (web _and_ brick-and-mortar) without any
effort whatsoever? The suggestion that cryptocurrencies are competition to
MasterCard's and Visa's duopoly is ridiculous. Cryptocurrencies, due to their
intrinsic online nature, are a very limited payment solution.

Note that I do support cryptocurrency efforts, use them, and follow the news
with interest. But cryptocurrencies are not even close to mainstream enough to
have this duopoly worried.

~~~
sickpig
You sure really do know a lot about cryptocurrencies.

I'm particularly interested in their "intrinsic on line nature", care to
elaborate a little bit further?

~~~
DCKing
Every Bitcoin-derived cryptocurrency has to keep in sync with the blockchain
in order to participate in payments. That is what I mean with "online in
nature".

~~~
sickpig
Ok now I got what you meant. thanks for the explanation.

Having said that your consideration about "on line nature" applies also to my
mastercard in almost all the shops I usually buy stuff be it on line or off
line. Without me providing the OTP and the payment processor verifying it I
can't buy anything.

A little bit OT but worthy IMHO. There are quite a few SPV (1) client
implementations that remove the need to have all the blockchain stored
locally. The things are moving even further in these field with the
implementation of the payment protocol (2)

(1) [http://bitcoin.stackexchange.com/questions/4649/what-is-
an-s...](http://bitcoin.stackexchange.com/questions/4649/what-is-an-spv-
client) (2)
[https://github.com/bitcoin/bips/blob/master/bip-0070.mediawi...](https://github.com/bitcoin/bips/blob/master/bip-0070.mediawiki)

~~~
DCKing
Thanks for the links, I'll check them out.

------
RichardFord
_According to Banga, in addition to being bad for MasterCard, cash is bad for
countries and governments._

Yeah, if you're of the mindset that everything that anybody purchases should
be tracked and scrutinized.

------
clord
This puts incredible power in the hands of the financial industry. It is the
most clear evidence I've ever seen for the shape of the coming (already here?)
plutocratic era.

------
cowbell
The problem with "Yes, if.." is that the person asking only hears "Yes..." You
better make sure the "if.." is in writing, with extra bold font. That, or
you're stuck supporting IE6 with no budget or time to do so.

------
refurb
One great reason why you wouldn't want to get rid of cash is anonymity. There
is no better way to give companies and gov'ts the middle finger when it comes
to tracking purchases than to use cash.

------
mfringel
The MC CEO wants to instruct his people to never turn down a deal, because he
wants to expand into the 85% of the market MC et al. do not have.

He's making the bet that as he grows the market, MC will be able to make the
new parts profitable somehow, _and_ that the thing holding him back is his
dealmakers being too conservative.

Put another way, he's hit top safe speed, and he's just flipped up the molly-
guard on the "untested go-faster button."

------
jacob115
"I don’t mean this in any bad way, considering I’m a man [myself] — but if you
give the man money, he uses it for … drinking, some [form] of hedonism," he
said. But, if you give the money to a woman, "the first thing it goes into is
the kids: their education, hygiene in the house, clean drinking water and
better food"

I thought this was meant to be about 'killing money', not Bangladesh's
apparent lack of gender equality or the MasterCard boss's rather blunt views
on the subject.

The article is all over the place. And -

"What really helps them realize they can make a difference is [the ability to
make] a decision — and that not making a decision is a criminal offense."

If I were an employee of MasterCard, I would feel very patronized and angry in
the face of a policy that disregards our opinions - even if it's obviously
just a marketing farce for the stockholders.

For once, I'm glad I use Visa.

------
tim333
>“Cash is the dirtiest secret of the modern economy. It belongs to a 200-year-
old economy. It’s being allowed to play a role because it suits vested
interests.”

is an odd statement. Cash goes back to at least the 30 pieces of silver in the
Bible, it's not much of a secret and I wonder who the "vested interests" are.
Perhaps the several billion people who use it daily? And "allowed to play a
role" is odd as it's the standard system everywhere. Maybe Banga dreams of a
world where Visa and Mastercard have the power to ban cash but perhaps still
graciously allow it to play a role. I hope that does not happen.

------
tomphoolery
Cash isn't going _anywhere_. There is WAY too much money that's "off the
books" floating around, and MasterCard is completely foolish if they think
that's just going to disappear because some idiot banker tells them that cash
is history.

------
acd
Credit card companies charges fees to the merchants selling items, in
principle its a 0-2% on all purchases made with cards in the world.

s/credit card/crypto currency/g

------
aquadrop
This may be a stupid question, but are Visa/MasterCard/etc essential? Can't
banks work things out among each other?

~~~
exo762
Visa and MasterCard are basically branded, proprietary protocols. They
regulate how card issuers (banks) and card acceptors (PoS and other banks)
work with each other.

You can remove those proprietary protocols, replace them Bitcoin. Your card in
such situation is replaced with multi-signature Bitcoin wallet and have most
advantages of current system without it's greatest problems.

What stays? Third party (ex-bank) is still capable of providing you mechanisms
that are there to protect your money in case of theft of your wallet. What
goes away? Third party (bank) no longer has control over your money. They
can't steal it or freeze it. They can't prevent you from using it.

Added value? Since you no longer need Visa INC and you can freely switch
between financial services providers (ex-banks) your costs go down.

------
doctorKrieger
it's not like when the government removes cash people will turn to trading in
gold or any other portable thing.

------
zo1
Mods, please change the name of this submission. It is completely misleading.
The linked article is titled: "Why Killing Cash is Key to Mastercard's
Competitive Strategy".

On the other hand, if this was meant as click-bait, then go right ahead and
not change the name. I'll just regret my click, and hopefully this comment
will serve as a warning to other unsuspecting, curious individuals.

 _Edit_ : I see that the title has been changed. Thank you very much, mods!

~~~
bavcyc
It was not meant as click bait.

To me the interesting portion of the article was the "Yes, if" instead of
giving the answer of 'No.'

The tab in the browser says "Why Killing Cash is the Key to Mastercard's
Competitive Strategy" but the title on the page is "MasterCard’s Ajay Banga:
Why ‘Yes, If’ Is More Powerful Than Saying No." I typically don't pay
attention to the title in the tabs.

Anyway, I found the comments on the article interesting even when the
discussion went where I didn't expect.

