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Letter From the CEO (MAG Quarterly- Volume Two, Issue Four)


The Disruptors!
By Mark Horwedel, CEO, Merchant Advisory Group

December 4, 2014

There’s never been a time like now for payments. In fact, some of us are fond of saying the payment space has gone mad. Payments today is filled with friction and fractionalization; and, it is under assault by change-agents, the so-called “disruptors” (can you say “disruptors” in your best James Earl Jones Darth Vader voice?) whose evil intentions are to change the payment universe forever. 

“Why?” some would ask would anyone want to get into the business of payments when allegedly it is nearly impossible to develop a new network or confront the dominant powers that control the payment space today. Man, this business is complicated—implication—leave it to us incumbents.

One has to wonder why the disruptors don’t just go away. Does it suggest that they seriously believe they can establish their own networks and garner a significant share of the payments business? Does it suggest that they have superior technology or have found a way to handle payments more efficiently? Don’t they know that many others have tried before and failed?

The answer is-there’s a lot of money in payments. The stock market welcomed the networks’ IPOs and continues to bid up the price of their stock. Cards continue to represent one of the most profitable businesses for banks and credit unions. Profits continue to roll-in despite the lack of innovation and reliance on 50 year old core technology. The banks have zero interest in changing anything that might threaten the existing system. That’s why the U.S. payments system continues to have some of the highest fees and highest fraud rates in the world. 

The payments business appears ripe for disruption. Payments technology has progressed significantly over the years and new technology seems to arrive daily at an accelerating pace. Exponential increases in computer power threaten obsolescence for aging bank core processing systems seemingly unable to adapt to the demands for better security and services.

Is it any wonder those outside the payments industry view payments as a great opportunity to apply new technology and take market share from the incumbents?
So what’s a merchant to do? 

I’d suggest the merchant community welcome the agents of change - the so-called disruptors - who might help move the U.S. payment system back to its former position as the world leader, who might devise better means to fight fraud and who might share with merchants the fruits of their success. Until and unless disruption occurs, merchants will continue to pay more than their fair share for payments in the U.S. and continue to lack serious input in evolving payments beyond the present state.