The Coming Payments Revolution
In the 1990s, using an online travel site was like visiting a travel agent. You told the software where you wanted to go and when; you got some times, prices, and airlines, then you chose.
Priceline's reverse auction blew up this model, and Kayak's shopping of various travel sites was the second verse in that song. As of Friday, Priceline was worth over $31 billion while Orbitz (OWW) , the airline-based site it was once thought would monopolize the space, was worth just $235 million.
The same sort of thing is about to happen in payments, a much bigger industry. It won't be a straightforward price war, but the industry is about to be transformed nonetheless.
Most attention is focused on mobile payments, partly due to Square's tie-up with Starbucks (SBUX) , reported by our Chris Ciaccia last week . But the story doesn't start there.
It starts with a court case, In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, found on the SEC Web site, in which stores challenged the fixed debit card "swipe fees" charged by banks organized through Visa (V) and MasterCard (MA) . Business Week writes that plaintiffs are fighting a proposed $7.25 billion settlement but the action has already moved to the marketplace.
Square charges merchants either a flat fee of 2.75% of a credit transaction, or $275/month, and offers free tools for analyzing sales patterns. They've helped iPads replace cash registers at many small stores where I shop. Thanks to Square and its competitors, Girl Scouts, farm stands and garage sales are now taking credit cards, as ResourceNation notes.
The complex routes by which banks, processors, and their re-sellers price credit card transactions, described here by Cardfellow, have given both big and small companies ample room for both financial and technical innovation.