By Dimitra Stefanidou
Visa and Mastercard are fighting back from the latest blow in their battle over credit card fees by pulling out business moves that pack a punch. Their next leap forward? Mobile payments.
The two financial giants were given a bloody nose when an American court ordered them to pay over $5.7 billion in compensation to traders for fixing fees. But so far they haven’t needed to pay up, and their move to new payment apps mean they shouldn’t be counted out.
The huge fine came after they were found to have improperly collaborated on credit-card swipe fees, in a case that also involved other huge players such as the Bank of America and J.P. Morgan. But despite the successful action merchants who wanted better terms refused to settle, sending the matter back to the court for further litigation. Again.
Breaking new ground
In the meantime the payment processing companies are focusing their attention on new grounds. Smartphones. This was once the sole territory of technology companies, however, things have changed and banks are trying to get their slice of the pie.
JPMorgan showed its hand in 2015, launching its first online payment app, Chase Pay. This allows users to pay instantly at cooperating retailers via its phone app. It recently added Starbucks to its cooperating merchants and has also launched Chase Quickpay, a P2P mobile payment app which aims to rival similar applications, such as Venmo by PayPal.
But why is this an attractive area from them? There’s a lot of scope for catching the interest of customers who are moving to digital payment methods, and they can easily set low transaction fees (the issue in the court case they’ve been involved in.)
Chase Pay, for example, can charge retailers less as it operates under its own payments’ network, Chasenet. By comparison, PayPal charges about 2,9% per online or in-store transaction, and so does Venmo. As one recent analysis of the market mentions, “Chase has its own payment network, ChaseNet, which is essentially a white-label version of Visa’s payment network, obtained on a 10-year contract with Visa.”
Moving in on the action
As Chase Pay expands its collaboration with more retailers and financial institutions it may allow users of its app to be able to transfer funds, not only to other Chase Pay users, but also to non-users that are subscribed to other banks. And it is this kind of aggressive marketing that filters through the entire business model. It is currently offering lower fees to merchants if they start working with Chase Pay instead of their current payment processing provider.
So what happens now? It seems banks and credit card companies are trying to win bank the trust of consumers and retailers that was lost because of the kinds of practices that found Visa and Mastercard in court. The kind of high transaction fees, which led to the filing of lawsuits, are now being replaced by lower rates and attractive incentives for consumers and merchants when choosing their services and products.
As a recent survey, which was conducted by Citi Cards reveals, consumers in the American market have started adopting new ways of paying through mobile phones, but not quickly. That means the early competitors in the market must make their best effort to educate and attract the novice consumer; and in turn be the first to win the race.