Depending on which trade source you utilize, there are statistics that bear out the claim that almost six million merchant accounts in the United States accept Visa or MasterCard, and Discover claims in excess of four million merchant locations. On a typical day, millions of transactions occur as people swipe their bankcard through a point-of-sale and their 16 digit personal account number, or PAN is sent through the telecom infrastructure for authorization, capture, then the eventual settlement and clearing process.
    The typical credit or debit card process all works really great as everyone will attest–whether you’re a merchant, acquirer, Issuing Bank or consumer. Even though there are many antiquated legacy platforms processing transactions, and the ability to perform real-time messaging is pretty much non existent save for the limited and cryptic declines and such, folks that make their living from this environment are pretty happy by and large.
    Unfortunately we feel that there is this wonderful asset is being absolutely squandered, namely this great big bankcard infrastructure.
    Here’s a scenario that we come across quite often. A small chain buys another small chain and adds a couple of new stores this year; changes an IT guy every year of so, adds a franchisee group and presto–six different points-of-sale with three different processors. Someone at corporate wants to roll out a gift card or loyalty program and quick as you can say roadblock the whole thing unravels as this terminal doesn’t have enough memory, and that point-of-sale system doesn’t have the right driver.
    However, the funny thing is, that the simple credit card can move pretty seamlessly through all the points-of-sale, whether store #17 has a Tranz 460, or store #52 has a 3750 device, or another has an IBM point-of-sale with a Magtek magnetic stripe reader. Like I mentioned before, we have run across this situation quite often and even though we have written lots of applications across many different manufacturers platforms and have our own portal, it still presents many challenges-–device memory, acquirer slots on devices, future support across different acquirers, roll out logistics; the list is endless. Maybe that’s why we still see some giant chains out there that can’t launch even a simple unified gift card program across stores around the country.
    I think you know where I am going here, but here is a good illustrative example of something that exists in the real world today with similar consequence. In New York City for example, a merchant has a choice as to where he can buy his utilities–both gas and electric need not be delivered to their location by Consolidated Edison. Even though the merchant’s gas and electric will certainly come in from the Con Ed lines that were laid down in the 19th century, the miracle of deregulation allows others access to the same merchant with costs savings and minor surcharges being paid back to the utility company that has to support the infrastructure.
    For reasons unbeknownst to us, the Bankcard Associations really have not come to embrace this wonderful opportunity of allowing other transactions to “ride the rails”. The possibilities are really endless; think of new plastic cards with 16 digits on a typical CR80 size card, simply no Visa or MasterCard trademark and hologram logo. This un-flagged card is simply faking out the system as if it were a bankcard transaction.
    Now some of you out there are saying, wait a second that is going to be an expensive transaction, really in the best case, a qualified retail transaction, which is a heck of a lot more expensive than a closed loop gift card transaction. And others will also say that there has to be a guarantee of good funds for seamless settlement. To these points I say you are absolutely correct, because this transaction appears to be a bankcard transaction from start to finish.
    The sad fact is that the Association really doesn’t appear interested in this evolution, as all they are really interested in is the continued building of their brands and taking market share from each other. We have presented wonderful deals in the past that were shot down because of this mind set.
    There are many great companies that have terrific messaging and real time transaction capabilities that could leverage up this seamless acceptance concept to do things that the bankcards of today can’t do, and may never be able to do. For example, the ability to convert loyalty points into real-time stored value dollars for redemption; although this is complex and not a capability that all processors have, this does exist today, in many closed loop systems.
    While it is true there are a couple of companies that have cards out there that work across the “rails” through old agreements, these companies are simply utilizing the rails to sell pre-paid phone cards at various chains around the country. This piece of the business is something that is not something seen as a growth vehicle for the Associations, which is sad and shortsighted.
    Certainly with 50 or more Interchange categories, the Associations could create another one: value-added infrastructure transaction let’s say, and maybe it’s priced at 30 basis points. Heck, they don’t have to create a new category, maybe take one of those dogs that have been created over the years that mean nothing to anyone and amount for no transactions (everyone has their own favorites of these transaction types) and recreate the qualification.
    The bottom line is that we predict that Discover will beat the Associations to the punch on this rich and untapped revenue source by helping underwrite and allowing un-flagged cards to ride their rails in the coming years. While Discover has even more retail locations than American Express, their transaction counts lag far behind the big three. As we expect Discover to change hands this coming year, we expect the new owners to strategize how to build up transaction counts through non-traditional ways.
    Let’s hope they look at their four plus million merchant locations with a different view to help usher in a new era of transaction processing for everyone.