By Jeff Chen, MShift, Inc, Vice President, Business Development
I am proud to have had the opportunity to present the AnyWhereMobile Payment Network (AWM) at the MAG 2014 Mid-Year Conference. MShift’s ambition is to calm the interchange waters between issuers, merchants, and payment networks through innovation, rather than litigation and legislation. The blended per transaction debit interchange pricing that was presented represents a 50% reduction from today’s debit interchange rate.
Our innovation lies in the fact that AWM can preserve the existing interchange margins for issuers while reducing debit interchange fees paid by merchants by 50%. How did we strike this delicate balance? Over the past three years the MShift management team has traveled across the country, from California to New York, from Alaska to Puerto Rico, to meet with over 60 issuers to design the real-time funds transfer process and economic structure that is the foundation on which AWM is built. The majority of these issuers were already MShift mobile banking customers so our discussions were focused and intimate. We sat face-to-face with the CEOs and CFOs of credit unions and banks on both sides of the Durbin boundary to understand how we could extend our partnership to create a state-of-the-art competitive payment network for the benefit of both issuers and merchants.
Payments are a two-sided market and while the pain merchants feel from interchange is obvious, we also learned through our sit-downs with merchants that consumer rewards are also fundamentally broken in today’s payment system. Currently, consumers receive rewards through one of two channels: large card issuers or directly from the merchant. The painful irony is that while merchants are financing both channels, they are only receiving credit, from the consumer’s perspective, for only half of the pie. AWM abolishes the concept of issuer rewards and puts the merchant back in the driver’s seat by integrating direct merchant rewards with AWM payments. This is common sense as merchants are the experts when it comes to creating a rewards model that is both economically effective for the merchant and impactful for consumers.
The AWM team believes that consumers benefit the most when issuers can earn enough to effectively manage risk and merchants can use their savings from interchange to invest in innovative reward and loyalty programs. It is through this partnership between merchants and issuers that we have built the value proposition for the consumer and will steadily steer their tender choice away from plastic to AnyWhereMobile.
So how do we get started? In Q4 of 2011, 50% of the total debit interchange revenues was paid to the 14,000 Durbin-exempt banks and credit unions (Fed Report, March 2013). What’s important to note is that the economics of these financial institutions is completely different than that of large issuers. These Durbin-exempt institutions issue debit cards because they are a fundamental banking service, not because they provide big revenue streams. In fact, their debit card margins are miniscule when compared to large issuers because they lack the economies of scale of the big players. To make matters even worse, the reality of the Durbin regulation is that these financial institutions, which are supposedly exempt from regulation, are seeing declining debit card revenues as an unintended consequence of Durbin! This is simply the sad economic reality of regulation – everyone is impacted, not just an isolated target group.
To remain relevant in a post-Durbin world, these financial institutions realize that there is now a great urgency to find a leaner, more secure, and frankly more sensible way to work with merchants to provide revenue stability to their payment programs. AWM is the product that will fill this void; merchants and essentially all financial institutions outside of the top ten can form a win-win-win alliance to benefit each other as well as consumers.
I was encouraged by the comments of many MAG merchant members who visited our booth after my presentation. Your comments mean a lot and drive our team forward. As a closing note, AWM will initially be launching a debit product, but will expand to credit soon. The underlying innovation is the same. We are making solid progress in our Closed Beta, and I look forward to providing an update at MAG Annual Conference this upcoming September.