Post image for Hostility in Payments

The recent entry of into the small merchant mobile POS card acceptance market may signal the last phase of increasing hostility in the US merchant acquiring segment of the card payments business.

Prior to the launch of Square in 2010, the merchant acquiring business in the US might have been described as having some of the characteristics of an oligopoly. The existing players had reached a rough equilibrium that was based on complex pricing schedules and a lack of pricing transparency. The market could be described as relatively inefficient and having high friction.

Large merchants were sophisticated enough to be able to negotiate more aggressively with their acquirers – while smaller merchants didn’t understand, weren’t interested in understanding the complexities and just settled for being able to get a merchant account.

Square’s launch included a radically simplified approach to pricing merchant services which, due to Square’s high visibility in the marketplace, educated small merchants that there was a much simpler (and, by the way, less expensive) alternative. Square sent a shot across the bow of the acquiring incumbents – it’s market entry represented the first phase of hostility emerging in the US acquiring business.

At the time, a small merchant friend of mine called me asking me to look at what he was paying to his (top 5) acquirer. He had been signed several years earlier by an ISO working on behalf of the acquirer – but hadn’t had any involvement with the ISO since. Looking at a couple of his recent statements, he was paying almost 7 percent all in to his ISO/acquirer. Having heard about Square’s pricing, he was appalled that he was being taken advantage of and was paying so much. With my encouragement, he called his acquirer to threaten termination and was immediately offered a deal which matched Square’s pricing along with providing him with a new POS terminal. My friend was the proverbial squeaky wheel that got greased – but if he hadn’t asked, it’s very likely that nothing would have changed.

Since Square’s launch, acquirers have had to adjust and respond to both the level of Square’s pricing as well as its simplification of merchant fee schedules. Several of Square competitors have actually come in slightly below Square’s pricing – hoping to gain a small bit of differentiation through a tiny pricing advantage.

Meanwhile, Square has looked to expand its role with the merchants it supports – moving beyond traditional payment processing to providing services that address the other commerce-related needs of small merchants.’s recent entry into the small merchant US acquiring market appears to represent the next leg down in terms of the US merchant acquiring business as the market is now entering another period of pricing (and, for incumbents, margin) pressure.

Amazon’s Local Register is offering promotional pricing (for merchants who sign up by the end of October) of 1.75% – a full 1% below Square’s current pricing. That promotional pricing will be in effect for Amazon’s merchants through year end 2015 when it changes on Jan 1, 2016 to 2.5%, 0.25% below Square’s current pricing. With its entry, Amazon has become the price leader in the mobile POS market – and is doing so with a feature rich offering for merchants.

In his recent book “The Everything Store: Jeff Bezos and the Age of Amazon”, author Brad Stone comments on Amazon’s focus on the customer and, perhaps more importantly with respect to this discussion about payments, on Amazon’s “natural advantage in its cost structure and ability to survive in the thin atmosphere of low-margin businesses.” In a 2012 Fortune article titled “Amazon’s Jeff Bezos: The ultimate disrupter”, author Adam Lashinsky notes: A favorite Bezos aphorism is “Your margin is my opportunity.”

Amazon has been providing ecommerce-based payments solutions as part of its Amazon Web Services initiative for several years – but with modest success. Amazon’s Local Register seems to be the new “tip of the spear” – focused on changing yet again the merchant acquiring business and its fundamental value proposition.

Based on prior experience, it seems we should expect Amazon will be relentless in pursuing this opportunity – creating new disruptions for US merchant acquiring incumbents (now including Square, Intuit and PayPal) along the way.

What do you think?

This PaymentsViews post was written by Glenbrook’s Scott Loftesness.


Post image for Full SEPA is Here, At Last

This week, we are delighted to feature a post by Manfred Schuck, a payments consultant from Frankfurt.  Manfred will co-lead with Elizabeth McQuerry our upcoming Payments in Europe Insight workshop to be held in Mountain View, CA on October 9. 

On January 1st, 2001 fifteen European countries introduced notes and coins of a new common currency.  At this singular moment, fifteen national currencies ceased to exist and a new star, the EURO, was born. That was also the first step in the creation of SEPA, the “Single Euro Payments Area”!

Among those fifteen countries, there were many different payments schemes, at least one national system per country plus another one for cross-border payments into other Euro-countries. As this was a very costly and inefficient way to do payments, the European Commission put pressure on the banking industry to either come up with a solution for this problem or to face regulation to get that job done.


Looking to avoid regulation, the three European Banking Federations (FBE, ESBG & EACB) came together and created in 2002 the “European Payments Council” (EPC) as a body to organize self-regulation on pan-European payments. As a result of the work of the EPC, the European banking industry came up with new payments schemes: SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD) as well as the SEPA Cards Framework for card payments in Europe. These methods became valid not only for the 15 Euro-countries, but for all EURO payments throughout the 28 countries of the European Union (EU), as well as with a number of volunteers, like Switzerland and Lichtenstein.

The SCT was first introduced in early 2008 and the SDD later in 2009. It was believed that through the introduction of those two schemes “market forces” would ensure a quick shift to and a progressive use of the SEPA-schemes instead of the old national ones.  Nothing like this happened!

As a consequence of the very slow pick-up of the usage of the new SEPA payments schemes, in February 2012 the EU co-legislators, i.e. the European Parliament and the EU-Council, adopted the Regulation No. 260/2012 “establishing technical and business requirements for credit transfers and direct debits in euro” and amended Regulation No.924/2009. Called the “SEPA Regulation” these steps defined February 1st, 2014 as the deadline in the EURO area for compliance with the core provisions of this regulation. In non-Euro-countries, the deadline is October 31st, 2016.

Effectively, this means that as of these dates, existing national EURO credit transfer-schemes have to be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD)!

In 2012 the European Central Bank (ECB) in Frankfurt began carefully monitoring the degree to which the SEPA changeover was taking place in order to ensure that by the February 2014 due date one hundred percent of the credit transfers, as well as the direct debits, would be executed as SCT or SDD.

In parallel, both the financial sector as well as the bank clients undertook multiple efforts and spent a lot of time and money in order to become SEPA-compliant on schedule.

So, by the end of 2013, some EU-countries, mainly smaller ones like Finland, Ireland and Luxemburg, had reached the 100 percent goal and were fully SEPA-compliant, whereas others, especially the large countries like Germany, France or Italy were still far from that target.

As a consequence, in January 2014 the responsible EU-Commissioner took the initiative to convince the governing bodies of the EU (i.e. the European Parliament and the EU-Council) to extend a further compliance grace period until August 1st, 2014 in order to prevent the collapse of payments processing among the larger economies of the Eurozone.

Today, on the doorstep to August 1st, the latest ECB statistics show that the change-over goals have been met and the rate of SEPA-payments is very close to one hundred percent. A few exceptions have been made in countries for “niche products” with a national market share of less than 10%; their grace period has been extended until 2016.

In summary, one can say that full SEPA has been achieved! But this will not be the end of the success story. The next step will be to fully introduce the SEPA-concept into the Non-Euro countries by October 31st, 2016.

When the EURO notes and coins were introduced in 2001, the Eurozone consisted of 15 countries. Nowadays they are 18 countries; on January 1st, 2014 Latvia was the last one joining and on January 1st, 2015 Lithuania will be the next. From the remaining nine EU-countries, seven are obliged to join the Eurozone, as soon as they can meet convergence criteria.  Only Denmark and the UK have an option to stay out!

With nine to eleven countries still to join, there will be many further developments in and around SEPA!


This Payments Views guest post was written by Manfred Schuck.


Post image for Bitcoin and Payments Survey 2014

We’re at it again. We’re conducting our second annual Bitcoin and Payments Survey. Please participate!

The survey takes about 7 minutes, maybe less. Do it from your smartphone while you’re waiting in the market’s check-out line or on the sofa using your tablet. The survey is mobile friendly.

This year we ask a few new questions about novel approaches to math-based currencies. We also dive back into your thoughts on Bitcoin’s future and its major use cases.


bitcoin and GB


Like last year, the survey is anonymous but if you want to leave your email, we’ll send you a copy of the report.

Last year, we were astonished to see how so many in the payments space believe that Bitcoin will have a long lasting impact and role in payments. No, it wasn’t a majority who thought that way but when north of 30% think that Bitcoin is going to change how we transact, that’s significant.

So, what do you think?

We can’t wait to find out how you view this phenomenon (and, yes, it’s still a phenom) now that we have another year under our belts, a whole lot more experience (good and bad), strong alternatives to Bitcoin itself, and new uses for the block chain ledger that will extend math-based currency utility well beyond payments.

So, take the survey. And help us get the word out. Let your friends know any way you can. The more participants, the better the results.


Here’s the URL:







Post image for What the BRICS Tell Us About Payments

As the leaders of the BRICS group of nations gather this week in Brazil (now that the World Cup crowds are gone), I’ve asked myself if that meeting has any important implications for payments. The BRICS moniker is often applied to a group of countries that share the characteristics large, young populations and high economic growth rates, Brazil, Russia, India, China and South Africa.

The BRICS share another characteristic, fast growing payment markets along with their economies, cash evolving toward electronic payments and young populations coming of age and, ideally, gaining access to formal banking and financial services.

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Post image for Learnings from the Bitcoin Workshop

Bryan Derman and I led Glenbrook’s second Bitcoin: Basics and Beyond workshop a couple of weeks go, this time in NYC from the 22nd floor board room of the Downtown Conference Center, a great space (the staff took great care of us, too, thank you).

As with every Glenbrook workshop—especially with our smaller Insight workshops on topics like Bitcoin, Data in Payments, Payments in Europe and B2B Payments—the questions and discussion enriched the experience for Bryan, me, and the business leaders who joined us for the workshop. The combination of commentary, insight, and the process of clearing up misconceptions made for a rich dialog that served everyone.


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Post image for MCX – Now I Get It!

In various venues — our Payments Bootcamp, our private client sessions or our merchant group meetings — we have talked a lot about MCX, the Merchant Customer Exchange initiative, created by a number of the largest US retailers to establish a merchant-centric wallet and payments solution. In these discussions, I’ve often joked about the name, since the last thing we think this is about is the participating merchant’s exchanging customer data as the name implies. But it dawned on me yesterday, MCX makes perfect sense if you think of it as enabling merchants to better exchange customer spending habits with manufacturers, consumer packaged good manufacturers (CPGs) and others to create more timely, relevant and compelling offers to those merchants’ customers!

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Post image for Who’s the Better Fraud Investigator Survey — What about Merchants?

Our Card Fraud survey is still open — we’re trying to answer the question of who first detects card fraud: cardholders or their banks? The survey can be found here.

I’ve received a couple of comments suggesting I left out an important fraud detector in the survey: merchants! In the card not present (CNP) space, merchants are often the first detectors of fraud, noticing suspicious buying behavior even though the issuer is happily approving the transaction. This is a big issue and challenge in the CNP world today: how do merchants communicate information and insight such as this to issuers? There is no good way to carry this information in the current authorization message and “out of band” information transmission systems between merchants and issuers have yet to land on a single standard.

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Post image for The Fed Gets Some Mojo?

Faster Payments May Get Here Faster than We Thought

Some of you may know that I’ve been an ardent advocate for a faster-payments infrastructure in the United States. I’ve been closely following the Fed’s process towards payments system improvements.

On Thursday in San Francisco, I attended one of the Town Hall meetings they’ve been holding to explain the results of their research and to share their preliminary thoughts with a broad (i.e. not just banks!) group of industry participants.

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Post image for Who’s a Better Fraud Investigator — You or Your Bank?

We often get interesting questions about payments, and the latest one stumped us: “How many credit and debit fraudulent uses are first detected by the bank? By the customer?”

We don’t know the answer to that one ­­or of any good source for this data ­­ so we thought we’d ask you, members of the Glenbrook community, to share your experience with card fraud detection!

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Post image for It’s Not About Payments

I just attended NACHA’s Council for Electronic Billing and Payments and I’ve come away with an even firmer opinion that this payments business I’m in isn’t about payments. It’s about data.

A retail payment transaction has the potential to throw off a lot of valuable information: what you bought, what you bought along with it, when and where you bought it, how much you paid, what method of payment you used to buy it, etc. This information is hugely valuable to a whole ecosystem of companies, each of which is dying to spend money to better understand consumer’s spending with the exclusive goal of throwing them relevant and compelling offers to encourage even more spending. Merchants want this, of course, but also manufacturers (thing Sony) and CPGs (think Unilever).

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Post image for The South Korean Card Market’s Fascinating Structure

My partner, Bryan Derman, and I just returned from a week in South Korea and a deep immersion in the local card market.

As consultants serving clients across the globe—including payments -related companies in Europe, Africa, Latin America, and Asia—we are repeatedly reminded of the remarkable differences between adjacent countries in any given region.  A very common conversation we have with clients goes like this:

 Client“We need an Asian payments strategy”

 Glenbrook: “Well, to be a bit more precise, you need an Australia strategy, a Japan strategy, a China strategy, …”

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Post image for What’s Your GPA?

As a biller or merchant, you are vitally concerned about your payments “back office”, that set of core functions involved with accepting consumer payments. Whether you are in Treasury or Technology, if you are concerned with payments, you are asking yourself, every day, questions such as:

  • Is my organization optimized to manage payments?
  • Am I staffed correctly?
  • Is staff working smartly?
  • Am I paying too much for payment services?
  • Does my technology platform help or hinder my payments goals?

Or even more basically:

  • Do I have goals for my payments back office?
  • If so, what are they?

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Post image for Back from the Future: Bitcoin2014 Musings

Last week I was in Amsterdam for the second annual conference hosted by the The Bitcoin Foundation. As a strategist and advocate for ever-better payment solutions, I was very curious to learn how the Bitcoin protocol and its emerging enablers can address some of the most intractable challenges facing payments.

For the most part, payments work fine today.  Yet at the upper and lower ends of the spectrum there are challenges – complex, cross-border transactions between businesses are slow, expensive and unpredictable; cross-border remittances remain largely cash, dependent on literally hundreds of money transmitters and their respective agent networks; and low value day-to-day transactions in the developing world where financial inclusion is a priority are still not adequately served. Microtransactions on the web are another ideal use case, as existing payment systems are not cost-effective for very small value transactions. It is at these extremes that bitcoin has the most potential.

I came away from the conference impressed by the power of the blockchain and the fervor of its advocates: it is the future of payments. It represents brand-new, global infrastructure that is resilient and adaptable. But it’s going to take awhile.

A few general observations:

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Post image for There Is No Such Thing As An International Wire

As globalization increases, businesses of all sizes buy goods and services from overseas suppliers and turn to new customers in overseas markets to drive growth. As a result, the demand for cross-border transactions steadily increases. The vast majority of these transactions takes place through correspondent banking relationships and collectively described as “international wires.” The reality is that there is no such thing as an international wire.

Each country has its own payment systems (with the exception of the EU, but let’s think of them as a country, for these purposes). There are typically two flavors of bank transfers: option one: an ACH or credit transfer system, generally slower and cheaper; and option two: wires, which are faster, typically irrevocable, and more expensive. These payment systems only work within their respective countries. Typically only banks that are licensed and regulated in a country have access to its payment system. Payment system transactions are denominated in the currency of their respective country.

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Post image for Square Grapples with the Payments “Poultry Problem”

Bilateral Adoption Claims Another Victim

Word came earlier this week that Square had sunset its consumer-facing app, Square Wallet.  The app had pioneered one of the great parlor tricks in payments, enabling a merchant using the Square Register POS app to recognize the presence of a Square Wallet consumer in its store and allow that consumer to pay for goods with his name and face as represented on the Square POS system.

In spite of this bit of mobile magic, it appears that the Wallet failed to gain traction with consumers.  A deal struck with Starbucks in 2012, designed at least in part to drive consumer uptake, failed to capture the consumer’s imagination in a venue already well served by Starbucks’ own, compelling mobile app. The combination of that failure and a perhaps too aggressively priced acquiring contact, may mark the Square-Starbucks deal as one of the great smoking craters in the annals of payments.

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