Someone asked me yesterday: what do you think will happen to the card schemes in the future?
I hadn’t thought about it much lately, but suddenly realised that the card schemes face a real melting pot of change. The last time I had talked about Visa and MasterCard in any depth was a while ago and, back then, the mantra was all about the war on cash and moving cards to mobile apps and contactless payments. Today, it is all different.
I guess, first off, Visa and MasterCard are viewed as American puppets. Certainly that is true in Russia (Visa and MasterCard block Russian bank customers) and I anticipate that, like India (RuPay) and China (China Union Pay), Russia will encourage its own domestic card scheme rather than the primary brands of Visa and MasterCard. For the moment, Russia has launched China Union Pay but you might wonder why they don’t do their own thing, like India has. In other words, we end up with lots of regional card schemes that compete with each other – Visa, MasterCard, China Union Pay, RuPay and then a RussiaPay and EuroCard; not forgetting American Express and Discover.
But then you could ask: who needs cards anyway?
As the internet age marches onwards and upwards, PayPal, Yandex and AliPay could easily become the standard for payments and more. Rather than cards, you just have internet-based transfers via apps and email. Right now, these services are based upon the traditional four-pillar model of banking but, in the future …
Then you have mobile and the work of the Bill & Melinda Gates Foundation to create a new financial model of inclusion based upon mobile networking. That could create a completely different model of banking and financial service.
But then I wonder whether we will transition from traditional card schemes to internet-based schemes or whether there will be a jump straight from these old structures to new schemes, such as Apple Pay. As discussed yesterday, Apple Pay is the first wallet to really create an Uber-style capability for payments. Removing friction and creating ease of payment via a mobile app is surely the way to go. The challenge has been creating a wallet that people want to use but, based upon early numbers, it looks like Apple has succeeded.
However, Apple? PayPal? Visa, MasterCard? These are all American puppets. That’s the core issue some might raise here. Why do you need a RuPay or China Union Pay? Why do you need a Yandex or Alipay? You need these because each regional superpower – of which I would cite America, Europe, Brazil, Russia, India and China as key areas today – wants to have its own sovereign scheme structure. Each region wants to control its own payments processing, and wants to legislate and regulate to limit or exclude foreign schemes.
The battle over interchange fees could be one example of how these regions limit competitive capabilities or, as illustrated by CUP, regulating to endorse the local scheme to the exclusion of the foreigners is also a way to go.
But this is the issue that came up with Wikileaks a few years ago http://thefinanser.co.uk/fsclub/2010/12/wikileaks-set-to-cancel-christmas-.html .
When the American government determined to squeeze WikiLeaks’ business, they first tried to strangle the payments flow to the business. That’s an easy start when the government controls the key payment processors – Visa, MasterCard, PayPal – and, when we think of the biggest firms that could compete in payments – Google, Amazon, Facebook, Apple – we need to remember that these firms are all American too.
Similarly, would Europeans or Americans use AliPay or Yandex? Not necessarily, as these are seen to be controlled by the Chinese and Russians, some would say.
So when I look at the card schemes and the future of payments, I see another reason why bitcoin – or another cryptocurrency (I’m not wedded to bitcoin as the only offer out there) – will succeed. An open source cryptocurrency that is shared by the global network of technology and not controlled by any government makes absolute sense in our modern world.
That fundamentally challenges the future validity of any existing scheme – Visa, China Union Pay, Yandex, Apple Pay – as these are all influenced, regulated and controlled by nation state governments. Bitcoin and cryptocurrencies have no domestic state controls. Cryptocurrencies are global, neutral, objective and independent. If that is not a reason for why such schemes will succeed, then what is?
In fact, what I really expect will happen is that one scheme – maybe Visa – will move to the blockchain as their back office transaction technology and, when they do, all others will follow. At that point, assuming the blockchain can scale to support such volumes, the world will run on a network not managed by one regional superpower.
Meanwhile, whether you buy into the arguments over the pros and cons of cryptocurrencies or not, the fact is that the card processors face a huge melting pot of change and no-one knows the outcome.
Visa, MasterCard, AMEX and Discover face strong regional competition from China Union Pay and RuPay. All of these guys are trying to work out how to adapt to the digital, mobile, social world. Then they find there are new players changing their business models like Apple Pay, Uber, Square and Starbucks. And, just as they realise what these guys do, there are radical new capabilities created by cryptocurrencies and fintech start-ups.
How they are ever going to deal with such radical impact and change, who knows?