Point of Transaction 201 Lesson 2: PoT Evolution

Point of Transaction 201: Competition for Consumer Choice

Lesson 2 Discussion Board: Why haven’t any of the ACH-based consumer payment products ever gained traction? Click here to respond.

Follow the Bouncing Electronic Ball: In the last section, we looked at the forces at work in the place where consumers pull out a payment option and move through the checkout line. A seemingly simple process, and a straightforward choice, has a myriad of forces at work in that moment when an electronic transaction is born. Whose infrastructure will get to carry the transaction from the merchant? Whose network will it ride? What services will the transaction unlock from those businesses as it travels back to the place where the consumer payment relationship lives? And, most importantly, what value will it carry back with it to fund the high expectations of the consumer who chose to access it in the first instant?

In this section, we’ll take a look at the major types of innovation that have informed consumer choice at the point of sale — what have been the drivers and how they have changed the industry — in a view of both the historical context for evolution at the point of transaction and of its current condition. In our final section, we’ll look at the ways the point of transaction may evolve as new forces — political, regulatory, and technological — come to play in this place where payments transactions, and an enormous industry’s livelihood, are born.

Innovation: The number of new ideas for products, services, transaction types, capabilities and processes to give consumers payments options and retailers acceptance choices could fill a book. Fortunately for all of us, I’m not writing that book here, and you’re not forced to read it. To make this a bit simpler for ourselves, we’ll bundle the innovations in the space into two major categories — platform innovation and payment innovation — and describe the forces at work and the players in each.


  • Platform Innovation – New things on an existing network: For our purposes, we’ll describe this as the kind of innovation in which an established electronic payments participant uses a combination of existing product definitions, transaction types, and network/platform capability, to create a new value proposition for a customer. If you hadn’t guessed it already, this is the most popular kind of innovation. Creating a new rewards offering for a consumer, building a debit product on top of the credit network rails, building a prepaid product on top of that, changing the way cards work at small-ticket retail to replace cash — investment goes to provide a new feature and function while working hard to play to the strengths of the existing network business model. Not surprisingly, most of the viable options for consumers at the point of sale — general purpose credit, debit, prepaid — are from here.



  • Payment Innovation – New things on a new (or new to the market) network: For those of you who have read MPD’s thoughts on the challenges inherent in igniting a new value proposition where you have to create the network effect –and if you haven’t yet, you really should (starting with the five questions a new payment should ask itself, here: http://www.pymnts.com/separating-fantasy-from-reality-in-the-brave-new-world-of-payments-innovation/%3FcommentStart%3D20) — this is by far the most challenging kind of innovation. We won’t necessarily call success here impossible to achieve, but it is certainly much more difficult. And it is, oddly enough, exactly this kind of innovation at the point of transaction in which most of the merchant processing industry has invested. In a long-running effort to create alternatives for consumers to access their deposit funds, a host of new companies have been born, lived (often not long), and died trying to create new and interesting ways for consumers to get real-time spontaneous anytime, anywhere, online access to their deposit accounts over a new debit network. Or, actually, over one of the oldest networks. A network that is — to steal the words Winston Churchill once used to describe golf clubs in the game of putting a tiny white ball into a hole-ill-designed for that very purpose: the Automated Clearing House (ACH).


Look! Up in the Air! It’s FastLaneDecoupledMonetaSmartChekDebitMan! Why would anyone try to take an offline bulk batch-file settlement system — created to automate the clearing of check settlements between banks (hence the name), sold by the cash management group at a bank, mandated/managed and majority processed by the Federal Reserve, and connected to back-end deposit systems of almost every financial institution-and drive it into the point of sale? The answer lies in that last little fact: By mandate, every deposit institution in the United States must be connect to the ACH, must accept all transactions from the ACH, and as it turns out, the deposit institution pays the network operator for the privilege of sending and receiving transactions (for those of you doing the math at home, the fees on these transactions are costs, not revenue). Well, if you’re a new business looking to build a new deposit access product that is 1) able to touch every deposit account in the country, and 2) really cheap, then the ACH looks like the network for you. And you may convince yourself that you can sustain the business like this: Every time you can convert a consumer from a debit transaction that costs a merchant 25 cents to one that costs him a nickel, you can share in the savings. Seductive, except for one little challenge: Consumers haven’t really taken to these products in the droves you might expect (or need). 

In the last section, we’ll explore a little further why this has been the case, what challenges these ACH-based systems have faced, and where we all might be headed from here.

Lesson 2 Discussion Board: Why haven’t any of the ACH-based consumer payment products ever gained traction? Click here to respond.

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