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Spectrum's MoneyGuard is a great product! It provides the 2-way SMS Alerts that I'd covered in this Finextra post:

How Banks Can Differentiate By Going The Extra Mile - Part 2

I just hope that its alerts include the merchant's name, else it could cause unwanted anxiety, as in the case of BANK1 in the above article.

In the run up to the GFC, banks had to package subprime mortgages into ARMS, CDOs and other 3- and 4- letter alphabet soups and sell them to others in order to get rid of toxic assets from their books. On the other hand, Money360 presumably exits the scene after brokering the deal and collecting its commission. Great business model. Doubt if Money360 will ever hit volumes big enough to threaten the next GFC. So, no systemic threat either.

@FinextraM: That's an excellent observation. We know that it's a common practice for different acquirer banks to offer different credit card MDFs for different product categories and different transaction-times-of-the-day. However, capitalizing on the best deal has often posed a challenge for many merchants since it entails finding space for multiple POS terminals in cramped checkout bays and training their checkout staff to select the "best acquirer" for a given transaction. We're aware of switching technologies that  use "Least Cost Routing" rules to automatically route each transaction to the acquirer that gives the lowest MDF for that specific transaction - from a single POS and with no manual intervention from the till attendant.

When it comes to CBS or ERP or any large-scale enterprise transformation program, I agree that "Product Innovation" must form an integral part of the program scope. However, even in an otherwise fast changing industry like IT, some things don't seem to change and I expect "Product Innovation" to continue to be brushed under the carpet as a "nice to have" soon after presales is over and implementation starts.

As for "Business Innovation", a CBS / ERP vendor is only one - albeit the most key - of the various players involved in large-scale transformation programs. Other key players being owners for existing systems (which never totally go away), end-to-end testing, new addon systems (e.g. datawarehousing), and so on. Therefore, companies might not be able to justify the elevation of only the CBS vendor representative to its Board. Having said that, in a few such programs I've been exposed to, the program manager, who has overall technocommercial responsibility for the program, does report to the company's Board / Member of Board or one level below.

Banks will want to examine the financial viability of delivering offers targeted at a "customer segment of one", especially one like the "World Cup Package", where many items are "bought out" nonbanking products. By definition, the bank makes this offer to one and only one customer. Let's say this customer signs up for this offer. The bank has to now book just one match ticket, one air ticket and one hotel room, incurring some costs in this process. The bank now has to make one of the following decisions: (a) Eat these costs and charge them to some internal account  like "customer advocacy account" or whatever (b) Pass on these costs to the customer, hoping that the customer will pay a premium for such a unique offer (c) Pad these costs into its own banking products like foreign exchange and travel insurance, hoping that the customer won't comparison-shop for them, or, even if s/he does, will let the relatively higher costs for these items pass. When it comes to corporate banking, such offers and options (a) or (c) are par for the course but I was keen on knowing your thoughts / experiences on them in the context of consumer banking.

In a free market, if credit card costs are causing such a major problem for retailers, nothing stops someone from introducing an alternative system at lower costs, thus relieving retailers of the need to use credit card networks. I know that ISIS tried going on its own but eventually decided to sign up with the usual suspects Visa / MC (more on that in my personal blog post titled Do American Retailers Want To Have Their Cake And Eat It Too?). But, there's no reason why someone else can't succeed.

If merchants insist that banks should set prices in proportion to costs, there's nothing stopping banks from asking merchants to reciprocate. And, on that, the present scenario is mixed: As I'd pointed out in another personal blog post titled The Tug-of-War Between Different Pricing Models, a typical English Breakfast costs less than 50p but a typical London 5 Star Hotel charges GBP 25 for it. 

@AlexanderP: 

Not sure if you're referring to any specific retailer when you quote the 4% gross margin figure because a back-of-the-envelope calculation using figures given in Yahoo! Finance (e.g. WalMart) reveals Gross Margin of retailers to be upwards of 20%. Against that, 2% credit card MDF doesn't sound high, does it?

As for the WSJ article you've hyperlinked, I remember quoting a respected retail industry analyst in a Finextra post / comment recently. This analyst warned WalMart, TARGET and other retailers against entering payments processing by themselves and advised them to continue to use the existing banking rails. According to this analyst, not only is the status quo tried and tested, but it's also cheap, when retailers factor in the true costs of payments viz. enrolment, fraud management and fail-safe infrastructure.

Excellent question. I know at least one answer to it that lies in the vendor selection process: The buyer announces the project as a compliance initiative (e.g. FPS). All bidders bid for a solution (e.g. XYZ product + extensions + customizations), implementation of which will lead to compliance. Inevitably, some bidders can't persuade the buyer that their bid can meet the compliance deadline and drop out of the race. Of the handful of remaining bidders who can demonstrate capability to meet the deadline, only a handful are able to show how their bid can add business value (e.g. move reconciliation functionality from mainframe to new, open system, thus cutting costs and improving profits) in the course of achieving compliance. Most often, the contract is awarded to one among this handful of bidders, and the stage is set for the buyer to achieve improved business results through a project that is conceptualized and funded as a compliance initiative. I've seen this happen on many occasions, one of which I've used while providing the above examples. This is perhaps how, even in highly regulated industries like banking, technology does often bolster business results.

Both SQUARE and iZettle obviate the need for merchants to get an acquirer account from their banks and still permit them to accept credit card payments. For this service, SQUARE (and maybe iZettle) charges 2.75% fees as against lower direct credit card MDF of around 2%. A merchant with a non-EMV POS (conventional, not SQUARE) in the USA already has an acquirer account, enjoys lower card acceptance cost than possible with SQUARE (and possibly iZettle), will get an EMV upgrade from current POS vendor if and when EMV happens in the USA, and is therefore unlikely to find strong enough reason to switch to iZettle just for EMV. 

As for Europe being a massive market for iZettle, that depends upon the size of the following use case that forms the bedrock for iZettle and other SQUARE-equivalents: (a) Consumer wants to pay by credit card, (b) merchant wants to accept credit card, (c) merchant goes to bank to get an acquirer account, (d) bank considers merchant's risk profile as high and rejects merchant's application, (e) hence merchant goes to iZettle and is able to accept credit card payments. 

According to many reports, (a) is smaller in Europe than in the US. Having personally encountered a big box retailer in Germany offer a co-branded credit card but refuse to accept it in its own stores - apparently it uses its credit card only for branding - I'm personally biased into believing that (b) is also smaller in Europe than in the US. 

Against this backdrop, it's going to be interesting to watch how this market unfolds.

If we take the "General Merchandisers" category - to which WalMart, Target, Sears and other retailers belong - in the latest FORTUNE500 list, the total revenues is US$ 661.483B and total net profits is US$ 20.061B i.e. 3.03%. Counting out loss makers like Sears and JCPenney, the average net profit percentage is even higher. Using a quick search command in the IMAP report referenced above, the only mention of profit and 2.4 percent I could find was in the line "Profit margins of the 200 largest retailers in the world fell to 2.4 percent...", which I'm inclined to take as net margin, rather than gross margin. Just as with employee, healthcare and other costs, it might be reasonable to expect credit card fees to be in lockstep with gross margin, but there's no such connection between these costs and net margin. In any case, I haven't come across a single alternative ePayment method costing brick-and-mortar or online merchants less than credit card @ 2% MDF. I'm counting out debit card since it is not a form of alternative payment.  

At the risk of going slightly off-topic here, I can't help pointing out what happened in the aftermath of credit card regulations in Australia: Merchants (e.g. Qantas) started levying 7.5% surcharge for accepting credit cards when the regulator had brought down credit card MDF to 0.5% and repealed the "no surcharge" rule.