STRATEGIC PARTNERS
Several speakers at this week's 'Payment System Optimization' conference in Baltimore stressed the need for innovation in the EFT industry. Online checks, micropayments and recurring payments were among the areas identified as especially ripe for new ideas.
October 22, 2002
The EFT industry needs big ideas to address the issue of small payments.
That message was a recurring theme in several of the addresses that kicked off "Payment System Optimization," an ATM and debit forum sponsored by Thomsonin Baltimore Oct. 20-21.
The industry must find ways to electronify the large number of cash and check transactions that occur in the U.S. each year, said Bond Isaacson, an executive vice president of Concord EFSwho spoke on "Payments Optimization." By Isaacson's count, Americans conduct 51 billion annual transactions with cash, 29 billion with checks, 21 billion with credit, 10 billion with debit and 6 billion with "other."
"The cash and checks are where future payment optimization will come from," Isaacson said. "We've got to figure out ways to get to them and make them electronic transactions."
Room to grow
Ron Congemi, president of Star Systems (which became a wholly owned subsidiary of Concord in late 2001), in his address on "Growth After Consolidation," identified EBT (electronic benefits transfer), online payments, micropayments and recurring payments as new or evolving technologies.
Congemi said those areas are ripe for growth, compared to PIN/signature debit and ACH (Automated Clearinghouse) transactions, which are more mature but still growing, and credit cards and checks, which will see little if any new growth.
Isaacson suggested that a combination of new partnerships and innovative thinking could open up new opportunities. For instance, he said, perhaps companies that collect rent from a large number of tenants would be willing to pay 50 cents in interchange for every $100 in rent if they were given the ability to accept payments via direct debit.
"We could reduce their costs of taking the payment, and we'd make a little money too," Isaacson said.
However, Isaacson said, it's important for all participants to consider the effects of new ideas on others in the payment chain. Noting that he was initially excited when he heard a large soda company planned to include card readers on all of its vending machines, he said he reconsidered when he realized that financial institutions might need to print an additional five pages of 60-cent transactions for some customers' monthly statements.
Isaacson also believes that opportunities abound for using data to modify consumer behavior. For instance, he said, retailers could automatically send a message if a shopper writes a check that is then turned into an electronic transaction at the point-of-sale, offering gift certificates or other incentives if the consumer uses his or her debit card for the next three transactions.
Supply and demand
The demand for innovation is one factor driving industry consolidation, another recurring theme mentioned by several presenters. Dennis Lynch, the president and chief executive officer of NYCE Corporation who spoke on "Privatization of Networks," said that his company's sale of 60 percent of its assets to First Data Corporation in 2001 provided both an influx of capital and an opportunity to work with other First Data subsidiaries like Western Union, Telecheck and eONE Global to offer new products and services to members of the NYCE Network.
Lynch pointed out that the number of EFT networks has fallen from roughly 200 in the 1980s to just 40 today with five networks -- Star, NYCE, Pulse, Interlink (owned by Visa) and the Co-Op Network -- accounting for 81 percent of all EFT volume.
"We're moving toward a credit card model, where Visa, MasterCard and American Express have 94 percent of the market," Lynch said. "Right now, you've got a number of players vying to be one of two or three top networks."
A key graphic of Congemi's presentation was a pyramid with the words "38 total" (close to Lynch's figure for payment networks) at the base. Moving up, the word "connectivity" appeared at the second level. The word "resources" was added at the third level. Three words -- "connectivity, resources and vision" -- were found at the top of the pyramid.
