Top Storylines in Payments Last Three Decades

By Kevin Sullivan

This year I enter my 30th year in the U.S. #Payments industry. Here is my list of the top developments during this time. Let me know what I left out.

?1989-1999

·Started in the 1970s and finished in the ‘90s, point-of-sale (POS) authorizations went online with the help of low-cost mag stripe technology on the card and affordable telecommunications at the terminal. No more hand-held imprinters and paper Warning Bulletins with lists of bad accounts.

·American Express celebrates the 100th anniversary of the travelers cheque in 1991. It was a fun party, by the way.

?·First Data continues buying up the remaining regional bank card processors like Eastern States Bankcard Association that were all over the country.

?·Bank acquirers were slow to get out of the branch and sell to merchants. Independent Selling Organizations (ISOs) pound the pavement to get acceptors. Some bad actors lead the networks (MasterCard, Visa) to both cooperate with and monitor ISOs.

?·AT&T launches Universal Card in 1990. Big stir as Mastercard opened the gates to a non-bank (deal with Synovus Bank). “No fee for life.” AT&T combined a calling card with a credit card (discounts on telecom). Lawsuits and press coverage followed. Co-branded card thing is out of the box.

?·Wells Fargo and First Data create the first merchant processing joint venture between a big bank and a scale processor in 1993. Bank of America, Bank One, Citi and others follow. This model has unraveled a bit lately with Chase peeling away in 2008 and Bank of America exiting BAMS in 2019.

·In 1994, Bill Gates of Microsoft said “banks are dinosaurs, we can bypass them.” All roads still lead to the banks, though now consolidated and regulated. This battle cry attracted new players to banking and payments and rallies Fintech today.

?·Armed with aggressive direct marketing and data mining, “monoline” banks like MBNA, First USA and Advanta appear -- eschewing branches and pesky services like passport photos and focusing on the highly-profitable credit card product.

?·Capital One takes bold step as a monoline credit card issuer to build a brand. And later even buys retail banks. “What’s in your wallet?”

·Issuers flood mailboxes with convenience checks allowing access to a card’s credit line. Also, when signing up, consumers are asked to switch a balance from another issuer -- starting a trend of “balance surfing” by savvy and not-so-savvy consumers.

·American Express gets a big head start. Then the bankcards convince merchants and acquirers to send Level 3 data such as invoice number and flight information which unlocks the Corporate Card market. Purchasing Card follows. Total volume on commercial cards including Business Card and Fleet Card by top 10 issuers hit $711 billion in 2018.

·Many point to the sale of a compact disc (Sting!) in August 1994 as the first secure ecommerce transaction. $517 billion in U.S. sales in 2018 and growing.

·FTC's Telemarketing Sales Rule (TSR) of 1995 and other regs walled off a decent acquisitions channel for card issuers. Digital marketing emerged to fill the gap.

·American Express quietly allows large acquirers to sign merchants for AXP acceptance and process authorizations. The program is opened to all acquirers -- “Opt Blue” -- in the 2000s.

·PayPal, founded in 1998 as a PalmPilot app, pivoted into markets the banks ignored (eBay and P-to-P) and created a successful business that sits on top of the existing Visa/MasterCard structure. Amazing.

2000-2008

?·By 2000, half of the top 200 banks felt they couldn’t compete and sold their credit card portfolios – often to the monolines. This trend would later reverse as the banks sought the profits and customer data of credit cards and got back in.

·Merchant lawsuits vs. the payment networks led mega merchants to reduce their cost to accept cards via marketing incentives and deals from the brands. Small merchants carry the load on interchange which enables that cash back card in your wallet. And we’re still in the courts today.

·MasterCard merges with Eurocard in 2002. Visa later escaped complicated governance when it acquired Visa Europe from the banks there in 2016.

?·Consolidation of volume among top acquirers and issuers continues unabated. Monoline credit cards issuers disappear due to capital constraints. Most sold to diversified banks. Capital One flipped the script and started buying retail banks.

·Airlines, down after September 11 attacks, had to borrow more from banks that also handled their co-branded cards. Renegotiated deals with little leverage resulted in the tiresome hawking of cards – even by flight attendants before landing.

?·UnionPay launches as payment network in China in 2002. In a decade, joins MasterCard and Visa as the only truly global payment networks so far.

·American Express wins its 2004 antitrust lawsuits against Visa and Mastercard -- striking bylaws that prohibit member U.S. banks from issuing with rival networks.

·In 2005, a helicopter with six executives from MBNA crashed after takeoff in New York’s East River. Thankfully, everyone survived but the purpose of the trip leaked. The team had been negotiating the sale of MBNA to Wachovia. The deal fell through a few days later and Bank of America swooped in for $35 billion.

·Chase successfully followed the lead of American Express with a cohesive set of branded card families like: Freedom, Sapphire, Slate, Ink. No partners looking for revenue sharing.

·Macy’s, Sears and other retailers sell their private label portfolios. Consolidation in the private label space continues.

·Mastercard goes public in ‘06 at $39 a share. Has never looked back returning 4,500% for investors. Visa in '08. Banks giving up ownership of the networks was a blunder, said Ken Chenault, then-CEO of American Express.

·Amazon shows the value of a stored credential -- keeping your card number on file. Now, you can order goods from your fridge or washing machine. The payments part of Internet of Things (IoT) is made possible through the simple idea of the stored credential coupled with identity verification.

·By 2000, 10,000 different affinity and co-branded cards had been launched. By the end of the decade, issuers were chasing only 100 meaningful programs. The others are re-branded or slowly “attriting” due to “strategic neglect.

·Content-driven lead generators like creditkarma and nerdwallet appear -- to get a chunk of those $150 CPAs (Cost Per Account) funded by issuers. The fight for eyeballs wages on. Today we have “digital influencers” like The Points Guy who advise and sell.

·Then the Great Recession hit.

2009-2014

·The Credit CARD Act of 2009 reduced issuer income streams. Impact won’t be fully understood until lenders are forced to push through the first recession since 2009 – whenever it arrives.

·Value-Added Re-sellers (VARs) and Integrated Software Vendors (ISVs) fill a gap for merchants with software that helps the merchant run the business -- and take payments. Some 4,000+ operate today and have more influence with the merchant than the old acquirer.

·Heartland Payments data breach in 2009 changed everything. Massive scale. Confusion about what happened and what to do. A lot of reform, new procedures after that.

·The Durbin Amendment of 2010 (part of Dodd-Frank), with a cap on debit card pricing for large banks, squashed debit rewards and pushed large banks out of prepaid card issuance.

·The Durbin Amendment ensures merchants at least two debit networks to choose for routing, gave new life to the alternative debit networks like Star and Pulse.

·The ISO merchant acquiring model, amassing thousands of local merchants into a portfolio and selling to a top 10 player, effectively ends. Why? Decline of local merchants, rise of VARs with complicated but effective POS solutions and consolidation.

·One day in 2009, U.S. debit card volume surpassed that of credit card and has never looked back.

·Telcos tried to use their place in the phone to control mobile payments with Isis/Softcard. No compelling consumer incentive. Then the banks and device manufacturers, kinda sorta cooperating, just waited until Softcard ran out of funding and time.

?·Merchants saw mobile payments as a gateway to reduce interchange and push an ACH structure (2012) -- MCX CurrentC. Was a little early for the U.S. and consumers didn’t bother because card in their wallet was convenient enough and rewarding.

·Chase does 10-year deal with Visa to rent its network for on-us transactions at Chase merchants with a Chase card (2013). Chase can reduce its expense by concentrating its volume with one network and sweeten its merchant pricing a bit…ChaseNet.

·mPOS and ecomm acquirers like Square, Braintree and Stripe who market to merchants digitally grabbed the high margin, shrinking, small merchant base from traditional acquirers. They also lend to small business.

·China quickly jumps to QR with Alipay and Wechatpay. Starting in 2014, the “Pays” (Google Pay, Apple Pay, Samsung Pay) appear. These players control hardware and all touch apps on the mobile device – so are in a good position to bring Near Field Communication (NFC) and Magnetic Secure Transmission (MST) payments to the U.S. market.

2015-2019

·Though unrelated to chip, the Target data breach of 2013 finally pushes the U.S. to adopt EMVCo standard (Europay, Mastercard, Visa) cards -- but without PIN for credit cards. By 2018, the “chip-on-chip” transaction rate reached 65%.

·EMV contactless cards (goes back to Mobil gas stations in the ‘90s) finally catch hold in the U.S. Most credit and debit cards have it and all new POS terminals can receive the signal. This is “mobile payments” for now in UK, Australia, U.S., Europe, Canada. However, Far East = QRC on the mobile device.

·Square pushes POS terminal makers to be more customer-friendly. Cayan, Clover, Poynt and others followed with sweet devices.

·After PayPal showed the way, MasterCard and Visa launched ecomm authentication tools that didn't fly. Another chance to get it right is here with the new EMVCo 3DSecure. A lot of winners if this succeeds.

·In 2018, Supreme Court ruled that American Express anti-steering rules (merchant can't push consumer to pay with a certain product) are OK.

·General Data Protection Regulation/GDPR in Europe from 2016 and implemented in May 2018 drove a massive two-year effort by many payment providers and merchants to get ready – even in the U.S...Compliance now rules.

·Automated Clearing House (ACH) volume continues to grow. The Fed pursues “Faster Payments.”

·The CFPB announced extensive new rules for prepaid card issuance that went into effect in April 2019. Smoked out some smaller players. Gift card and prepaid as a “banking lite” product keep marching on.

·With Zelle, big banks have fought back against P-to-P payment providers like PayPal, Square Cash and Venmo by following a Visa and MasterCard style association playbook of centralized network and local differentiation.

·The arms race of perks and rewards to book new credit cards can’t be sustained and issuers start to pull back value on some programs. Apple launches a co-branded account with cool mobile features from Final, the processor purchased by Goldman Sachs.

·Fintech firms provide new, digital-only solutions for all areas of financial services. Some focus on cryptocurrency which makes a splash as an investment but certainly can be a payment currency.

·FIS and Fiserv, strong in bank processing but not material in merchant acquiring and issuing, execute mega acquisitions of WorldPay and First Data. Get used to those two names.

Payments, an ancient business, will carry on because people have to buy stuff – to the tune of $10 trillion by U.S. consumers last year. We in the industry think it’s all about paying. But for consumers, it’s about what they’re buying. We go along for the ride.

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Follow #Payments on Twitter at @kevisull