Sea of Troubles

➞ What the Square and Starbucks Alliance Means for Payments

Brett King, founder of Movenbank, regarding the Square/Starbucks deal:

The real issue for Amex, Visa, Discover and Mastercard right now is that the ‘cardless’ movement is rapidly accelerating and customers are flocking to these new technologies. The issue is not the death of cash – but the death of plastic. In a much simpler, better informed payments interaction, plastic just looks dumb, insecure and outmoded.

King makes a great point. Much of the coverage of mobile wallet developments focuses on the idea of the “death of cash”, but there doesn’t seem to be much evidence that cash is being driven out.

What these mobile wallet technologies are very effectively doing is eliminating the user’s interaction with their credit card at the point of transaction, displacing both the swipe and the entering of digits, with an app. While most of those apps use credit cards as their transaction-processing back end, there’s no intrinsic requirement that they must always do so. Such an app could migrate to a stored-value model, or something else entirely.

Seen in this light, Apple’s EasyPay system has some of the same properties.

While it’s in the card schemes’ and acquirers’ interests now to support these initiatives – they do, after all, promise to drive payment volume – it may be a dangerous move strategically. If users’ can conduct the majority of their non-cash transactions without touching their card, they’re not likely to notice (or care) when the underlying payment mechanic changes. Given that the schemes derive their pricing power from universal reach and end-customer brand recognition, these apps represent a significant potential disruptor.