Visa and Mastercard make a highly complex payment system look easy to consumers. They also have developed a high level of trust with consumers and businesses.
It is a two sided market. I know I can go out with a credit (or debit) card in my wallet and use it in many places, the vendor knows that most people have a payment card so it is worth it for them to work with the incumbent. Starting out from zero you have a much harder time.
They also play a mean game of political engineering. Since they work closely with banks there are local and regional banks in every legislative district. Vendors complain about high fees, but some of those fees get kicked back to consumers in the form of “points”; consumers see that, they don’t see that everything is a little more expensive even if you don’t use credit because vendors are forced to build those fees into their prices.
Note it isn’t free to handle cash so comparing 3%-ish fees to 0% is wrong since cash is attractive to steal for both employees and others and requires time safes, armed guards, etc.
Note American Express and Discover are both alternative payment cars that look the same to the consumer but worked differently from a business perspective at least until the 2008 crisis. Then there are the Paypals and Venmos and M-PESAs of the world which there are an awful lot of because there are so many countries where Visa and Mastercard are not as entrenched.
> Note it isn’t free to handle cash so comparing 3%-ish fees to 0% is wrong since cash is attractive to steal for both employees and others and requires time safes, armed guards, etc.
Then again these days there are only a few big POS providers that merchants use, you'd have to get the POS providers to accept your payment method and that would be a huge win.
Uhh, not so sure about “only a few big POS providers”. I mean there are a few bigger ones but the long tail is looong (go search for “best pos” or similar and see the list of names). Not to mention every larger company is using something in-house or white labeled from a company you’ve probably not heard of.
So sure, there are a few bigger providers but a lot of POS systems (not all) are in it for the CC fees (they want a cut) which means they work closely with MC/Visa/etc, how do you think the existing CC companies will respond to a POS working to help dethrone them? And what’s in it for the POS company?
> But does anyone think they can be dethroned? İs it possible?
Yes and yes.
Lookup RuPay of India.
While you're at it, also lookup UPI, also from India.
Some details I just read on its Wikipedia page[0]:
> NPCI conceived RuPay as an alternative to Mastercard and Visa, while consolidating and integrating various payment systems in India.
> ...causing Indian banks to bear the high cost for affiliation and the connection with international card associations schemes like Visa and Mastercard. This results in the need for routing transactions of which domestic account for more than 90%, through a switch located outside the country.
And, of course:
> Mastercard and Visa have raised concerns with the Office of the United States Trade Representative (USTR) over India promoting the use of RuPay.
Don’t forget amex
Anything is possible but not easy. I believe the closest thing to alt cash payments we’ve had in the past few decades was crypto but that haven’t really taken off much. After the FTX scandal it’s taken a bit of a back seat in terms of consumer confidence
Visa and Mastercard have built trust not only with consumers but also large banks. That relationship in itself is hard to dethrone. You really need a viable alternative that can get the confidence of the consumers and companies that will invest in the product
It is necessary. I have been informed by banks that they force their services (such as, forbidding the offer of alternative ones).
So, those of us that refuse Visa and Mastercard (for example, refusing cards embedding NFC) now have no service available in some area, and will be monitoring for alternative solutions.
I'm curious to know why people (you?) refuse cards embedding NFC. I know a couple of people who do because there's currently no cardholder verification required when making a contactless payment, which could make your card a more attractive target for theft. Are there other reasons?
-- A radio bridge to a bank account already does not sound right.
-- Payment must need some signature: it could be a PIN, it could be that the payer hands money to the payee. It cannot be that the recipient approaches a card.
-- Technical circumvention of security systems is a possibility that overwhelms any possible benefit of "contactless" payment. Risks are created and no value is added. (Actually, less then zero: tapping the card instead of inserting it in a reader seems an unjustifiable transition.)
-- Already reading the card contents could create access to personal information (it apparently happened that some cards revealed full details).
-- Were the card stolen, the thief would be able to use it. Then you should go through bureaucracy to void those purchases - but there was no need for any such unretributed waste of energies in the first place. Nor there was a need for insurance when what you wanted was security.
-- The protocol was apparently faulty, in that transactions between card and reader always work (as if to prevent failures in case of data connection outage), and if the card was recalled the transaction is cancelled at a later stage (instead of being validated as a condition to carry on the expense).
-- In case of a major failure, good luck in winning the litigation.
-- In case of a mid-sized failure, e.g. the thief committed more transactions having gained access to the PIN, the declared policy of many banks is to put the fault on the card owner, who "must have misplaced the PIN - they all do that, don't they".
-- Unclear contract: the expense roof is 10u today, maybe 100u in the future, later 1000u - decided by the systemic side.
-- Unclear workings: proponents will often be unable to answer to simple questions such as limits in rate of expenses ("You set a limit of 10u for PIN-less expenses: what happens if somebody tries many transactions in a short timeframe? One may not fear a transaction of a 1000u, but 100 transactions worth 10u" "Ah.")
-- Vile communication, such as "it is secure because you will always keep the card with you" (this was on the website of a major player) should as always be an alarm.
I may have not remembered a few while writing, especially obvious ones.
Thank you for going to the effort of coming back to respond! I appreciate the detailed critique. There's a lot to think about here, but one thing that comes immediately to mind is that this:
> Payment must need some signature: it could be a PIN, it could be that the payer hands money to the payee. It cannot be that the recipient approaches a card.
...could be easily solved with a button on the card (like my FIDO2 key has), or, in the case of the NatWest trial, a fingerprint scanner[1] on the card itself. This would stop the card from being (accidentally/maliciously) charged by NFC through a wallet or pocket. Unfortunately, it doesn't look like NatWest continued the trial - for the moment, at least, that makes gives them the privilege of being both 'the first' and 'the last' UK bank to unveil biometric credit cards!
Im unopinionated but it’s interesting how a decisión like this may barre an individual from places like Costco, who are Visa-only, but suppose there’s cash
In theory India has sort of done it with UPI. Cost have been distributed across govt/banks/tech firms that make the apps and the end user who pays for the internet and phone. Whether its sustainable or not time will tell.
The settlement is kind of real-time. And there is no concept of disputes or chargebacks, so that keeps cost low. UPI providers bear cost, but they money by bundling other services in UPI apps.
VISA was started as an almost cooperative organization between banks. VISA itself isn’t much other than a protocol and contractual agreements between banks. The technology is fine, could be better, but it would take some pretty compelling new cost savings measures to convince the banks to go in on something new. There’s stuff like Apple Pay and Google Pay which are sort of new in they lease some of the protocol’s “address space” to do their own type of payment processing.
Yes they can. In Brazil they were already, actually. The national payment gateway Pix already surpassed credit card as the most used payment method. And it's free.
In the US, we have FedNow instant payments, although it takes time to scale as it recently went GA. It’s a couple of cents per transaction to move up to $100k-$500k (depending on institution limits) of value. UPI and Pix are what the US looks like in the next 3-5 years.
I think FedNow will have a harder time than UPI and Pix because the private options are quite good already (although nobody likes to pay unnecessary tolls).
I agree there is inertia, but large merchants like Walmart (who specifically filed comments supporting FedNow due to credit card processing fees) are highly incentivized to integrate support for these payment rails in their infra to drive down payment costs.
Given that American Express and Discover aren't accepted in as many places as this duopoly and they've both been around for 30+ years, that tells you everything you need to know.
I can’t speak to Discover but Amex is so annoying to deal with. You have to set them up separately (from MC and Visa), they require you to setup a merchant account with them to accept Amex (payment processors like Stripe do this for you but if you go any lower-level you have to do some setup).
Then the Amex reps call you can try to spout the benefits of accepting Amex, how they can advertise your business to their card holders, yada, yada. It all feels like bullshit. I have an Amex card, I’ve never visited or not visited a business due to them taking or not taking Amex. I’ve never cared to look at the Amex site to find places that accept it.
They want to make it feel exclusive but it’s just not.
Network effects hinder competition. Because it’s not a market that has fair competition, regulations are needed to force the networks to be opened up. Or maybe split up.
Never Dethroned, imho (I've been working in-and-out of Banking/Finance for 20 years) they ain't going nowhere for the next 2-3 generations.
And even if the financial landscape changes dramatically, i.e. we stop using Fiat and Crypto and we switch to (physical) Gold and Potatoes, they have the skills/infrastructure/funds to quickly adapt and remain relevant/dominant.
How hard it is to rival it? Well, what's your horizon? Some with billions of $$$ to spare can get it done in 10 years if you ask me. It's not just about hiring like crazy in every country in the world, lobbying with every legislator/central bank on the planet, comply to every regulation/ISO/PCI-DSS/etc. under the sun..
Doable? Definitely. Chances of seeing it happen? Big fat Nope.
On the other hand, what is needed is a good alternative - not necessarily dethroning them, but having some actor provide services they have abandoned to the niche that demands them.
the Nilson Report, a publication that tracks the credit card industry, found that Visa's global network (known as VisaNet) processed 100 billion transactions during 2014 with a total volume of US$6.8 trillion.https://en.wikipedia.org/wiki/Visa_credit_card
Visa and Mastercard make a highly complex payment system look easy to consumers. They also have developed a high level of trust with consumers and businesses.
It is a two sided market. I know I can go out with a credit (or debit) card in my wallet and use it in many places, the vendor knows that most people have a payment card so it is worth it for them to work with the incumbent. Starting out from zero you have a much harder time.
They also play a mean game of political engineering. Since they work closely with banks there are local and regional banks in every legislative district. Vendors complain about high fees, but some of those fees get kicked back to consumers in the form of “points”; consumers see that, they don’t see that everything is a little more expensive even if you don’t use credit because vendors are forced to build those fees into their prices.
Note it isn’t free to handle cash so comparing 3%-ish fees to 0% is wrong since cash is attractive to steal for both employees and others and requires time safes, armed guards, etc.
Note American Express and Discover are both alternative payment cars that look the same to the consumer but worked differently from a business perspective at least until the 2008 crisis. Then there are the Paypals and Venmos and M-PESAs of the world which there are an awful lot of because there are so many countries where Visa and Mastercard are not as entrenched.