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Letter from the CEO: Merchant and Bank Collaboration is Essential to U.S. Payments (MAG Quarterly- Volume Three, Issue Three)


By Mark Horwedel, CEO, Merchant Advisory Group


September 3, 2015

Today, the payments landscape in the U.S. is highly contentious, distinguished primarily by ongoing bickering between merchant interests and bank interests. It seems to merchants that banks are singularly focused on maintaining the status quo, while banks view merchants as singularly focused on the cost of card acceptance. Sometimes lost is the fact that both share  in common a desire to better serve their customers, build loyalty and compete effectively against their peers.
Not long ago, merchants and banks were partners in developing a card payment system that essentially enabled both sides to focus on their respective areas of expertise, delivering benefits to consumers as well as to themselves. Merchants discovered banks were better at handling the underwriting and extension of credit, while merchants were best left to sell goods and services. Banks profited by expanding their consumer open-end credit business, merchants avoided heavy write-offs related to unpaid loans, and consumers benefitted by using credit to buy today and pay later. Merchants gradually stopped issuing cards (originally called “charge plates”) and banks took over card issuance.  As the payment card business grew and matured, bank networks entered the scene and gradually assumed the role of intermediate between the banks that issued the cards and the merchants that accepted them.

Card networks organized the card payment business by pulling together the previous confederacy of individual merchant/ bank partnerships. They gave the business a name, rules and common identification. They aggressively marketed their brands to both the merchants and the public. They enjoyed overwhelming success by providing the infrastructure necessary to enable merchants, banks, and the public to gain the benefits of a ubiquitous and predictable payment experience. The many benefits of this system are obvious; however, the model may need to be modified in order to accommodate the emerging payment landscape.

The payments business is much more diverse today than it was half a century ago when the card payment networks emerged. Technological advances threaten the status quo and their proponents demand entrance into the staid payments landscape. Merchants and banks, always a diverse group, may feel stifled by the homogenization that was necessary in order to gain the benefits of ubiquity and predictability that are now taken for granted. Regulators are increasingly concerned that we are falling behind the rest of the world in payments and are grasping for a formula that will enable us to regain our lost position of payments leadership. 

Perhaps the way forward is to encourage direct partnerships between merchants and banks, incorporate nascent payment technology and invite consumers to take a more important role in developing the payment systems of tomorrow. There are already signs that this evolution is occurring as one big bank is pursuing its own “network” within the framework of its existing network affiliations, and community banks and credit unions are joining with merchants to develop alliances driven by enablers of new technology. Networks can be catalysts for change rather than defenders of the status quo. Merchant and bank associations can assist by providing forums to promote merchant/ bank dialogue and alliances. We should cease labeling the providers of emerging payment technology as “disruptors” and instead view them as “enablers”.   Unless, we learn to embrace change and to work better together, the U.S. will continue to lag behind the rest of the world in payments.

The MAG intends to help foster increased dialogue between merchants, banks, credit unions, regulators, enablers and consumer interests. Our February conference will revolve around this theme of furthering communication and cooperation between all of the payments stakeholders. Banks, credit unions and their respective trade associations have been invited to attend, along with representatives of the Federal Reserve and consumer interests. We hope you will join us in this important initiative.