Peter Guidi's Blog

Disintermediation: Can retailers compete with the financial institution?

In Uncategorized on September 15, 2009 at 6:24 pm

Retailers righty complain about the high cost of credit and debit card acceptance. The issues revolve around the cost of card acceptance. The emergence of alternative payments or competition raises questions as to how Retailers can compete for consumer payment. Competition is sometimes referred to as the “third leg” in the strategy to fight high interchange fees, the first two being legislation and litigation (read politicians and lawyers). If retailers are going to use this “third leg successfully, what are the challenges and is the community up for the fight?

 

There are a variety of new programs available to retailers, all offer different technologies and target different types of bank customers. However, they all have one thing in common, the ability for disintermediation, or in other words, the ability for third parties (retailers) to provide these services instead of the customer’s financial institution. A good example of disintermediation is decoupled debit cards. There is no doubt that these services will continue to develop.

 

With decoupled debit the disintermediation occurs when the retailer eliminates both the issuing bank and card association from the consumers card based transaction. In doing so the retailer also eliminates the support (issuing and marketing) provided by these organizations. Eliminating this support creates a new set of responsibilities for the retailer. The importance of program design introduction and continuous messaging is paramount to successful program implementation and consumer acceptance. The only question is: Will retailers provide these services to the customer?

 

The alternative to competing is the proposition that the services provided by the card associations and banks are in fact high value services that retailers are unable to provide. If this is true then retailers may have to accept that the current payment card systems is a bargain; a proposition few retailers seem ready to accept.

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  1. We are doing our best to compete with “Big Box” retailers and the financial institutions. Our “Direct Gas Rewards” card has help us lower our credit card fee’s and built great loyalty with our customers. We are currently rolling our price back with our “Direct Gas Rewards” card 10 cents. We have some freeway construction near our store, so we want to give our customers a good reason to stop. Normally we roll our price back 2.5% of our pump price. Saving the customer what we would normally be charged by the credit card company.

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