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21 May 2009
At the MasterCard analyst conference in Purchase, New York, executives talked about buying newspaper with your mastercard at a vending machine. The same goes for transit fares, lattes, etc. While a case can be made for the merchant and it is certainly a win for the associations, it is unclear how big a win it is for the banks. If a consumer buys a $1.00 newspaper, the vendor could argue that the interchange saves the merchant from handling the cash. It's a win. The association gets increased volume and revenue for the network. They also get greater share of wallet. That's a big win. The bank gets under 2 cents of interchange on a debit card. Is that a win for the bank? They have costs associated with processing of that transaction that certainly exceed the interchange revenue. Do banks want to increase these transactions? On an individual basis, probably not. It might be worth it if this brings them to the front of wallet for other transactions as well, it could be worth it. Cards are moving to lower and lower transaction amounts and banks need to think about the implications for their card business as these transactions increase.
Bart, it was great meeting you at our event yesterday and I look forward to speaking again in the future.
Any solution that makes it easier for consumers to access a service, such as public transportation, and prompts the use of cards over cash is a win. Further, as the cards are used repeatedly and consumers increasingly see the benefits of using them for their everyday purchases such as for transit fares, daily newspapers and their morning coffee helps to shift the cards to a top of wallet position.
It is also important to understand that the construct for interchange in the transit environment is not that simple. For example, each swipe is not necessarily charged in a one to one ratio – there is often aggregating of individual transactions that take into account such factors as daily commuters. As we continue to expand electronic payments into new environments, we will continue to build out the compelling cases for acceptance and use, but among them remain speed, ease of use and overall making life easier.