What Interchange are they Looking For?

by Braden Kelley

I came across a couple of interesting articles on businessweek.com about relatively new payment solutions that people are looking at. The first article is about a company called National Payment Card that links your bank account to your drivers license or store loyalty card – creating a virtual debit card protected by a PIN. Transactions are processed as e-checks through the Automated Clearing House (ACH) bypassing costly interchange fees charged by Visa, Mastercard, and others for processing debit and credit card payments. In the areas where this is up and running, some consumers find this payment option quite handy (especially when coupled with a discount) and others avoid it out of fears of identify theft.

What do you think? Would you sign up for a solution like this?

The second article is about the GratisCard (which is now known as the RevolutionCard). The RevolutionCard is backed by Steve Case (founder of AOL) and ex-credit card industry players. The RevolutionCard processes payments over the Internet instead of over a dedicated payment network and is a PIN-protected credit card with no embossed account number or cardholder name. RevolutionCard hopes to lure merchants with lower interchange fees, and consumers with improved security and credit features. Other companies have tried to come late to the credit card game (think Discover Card), but without much success, so RevolutionCard faces a steep hill to climb.

Does the RevolutionCard have much of a chance?

The biggest challenge that these two new companies face is customer inertia. People typically pay in the manner they are most comfortable with or that will benefit them the most. Personally, I use a rewards card for everything I can (even small transactions), quite enjoy the free flights and hotel stays, and so would be loathe to use something else unless I thought it would benefit me even more. I carry three or four cards because there are always cases where one or more don’t work for whatever reason.

So, while both of these companies probably see themselves as innovative, I see their developments as interesting but not innovative, and something that the credit card companies could copy if they were so inclined. What would be more innovative would be one card to rule them all (a true “smart” card). A card that was smart enough to be used as multiple cards, that allowed me to prioritize which one it should pretend to be first, which one to go to second if there were any communication or card status issues, and had the ability to automatically sense which card would give me the greatest rewards for the transaction of the moment. That would be a true innovation. And hey, if it happened to also be my drivers license, all the better.

What do you think?

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