Ask HN: How to disrupt the payment card industry? | Hacker News Reader

Ask HN: How to disrupt the payment card industry?

7 pointsfsajkdnjk9 comments

The industry of payment cards is essentially an oligopoly of few companies that control the entire market(visa, mastercard, maestro and few minor ones).

This has been possible due to the way the things worked in the past. But now when we have internet connectivity everywhere and most banks have public APIs, why do we need to bow down to these few selected companies and play by their rules?

What would it take for this market to get opened up so new players could come in?

Essentially a payment card provides a way to send money from one bank account to another, not necessarily in the same bank, via intermediary. This intermediary is able to do so because the banks themselves are connected to it. Paypal on the other hand is the reverse of this - it is an intermediary that has accounts in all the banks on its own. Which could be taken as brute fore approach.

With banks now being forced to have public banking APIs, how do you think we could finally get rid of these few big players and enable smaller companies to take part in this business?

I guess without to cooperation of the banks, this is where any attempt would stop. Plus the user base of the physical cards. But everybody has a cell phone and Apple Pay and Google Pay are now quite common, so the piece of plastic is no longer needed.

Hence the question - what do you think it would take to finally get rid of this oligopoly for good?

It always comes down to "can you do something better than they can?". For all intents and purposes, the oligopoly is doing ok, is not egregiously expensive for the service they offer, and has first market mover advantage. They are innovating and providing value. There's a real barrier to entry like you mentioned in developing the required relationships with financial institutions to have enough uptake in most of the developed world. Non visa/mc alternative payment networks tend to take off where there aren't already established FIs or where they are very anti-western influence like China.

Best bet here is to target some aspect of the payment lifecycle that one of the incumbents isn't focusing on. That being said, if successful you're more likely to just get acquired than to topple the dominance.

Frankly I don't think it's worth it to try to disrupt this industry. It seems that some player always comes through to help modernize to some degree. Payments are a really boring, yet surprisingly complex space that someone else has already solved (from a consumer perspective).

There are many other aspects of the financial system that might be worth targeting.

It is extremely hard to get rid of the oligopoly and Visa and MasterCard make sure to keep their market position. My experience comes from trying to start a company in exactly what you are describing, using the OpenBanking APIs. So what I will say was just my experience and does not necessarily mean it is impossible.

1. Public APIs (I will be talking about the EU's public banking APIs following OpenBanking in the UK and PSD2 in Europe): if you think the public APIs will allow you to transact easily from one account to another, think again. In the EU a new concept called SCA (strong customer authentication) means that for every payment your user does, they will need to complete an SCA flow. These SCA flows involve a OTP sent via text, logging in to your online banking account to confirm the transaction, etc. Any form of SCA in itself is annoying and destroys the customer journey (imagine having to login to your online banking platform to confirm a payment every time you buy a coffee). However, what is more annoying is that banks control what sort of SCA they allow and since banks have a vested interest in other payment apps (that don't give them a cut) failing, they will make it as cumbersome as possible. 2. NFC Payment via Phone: even if you do end up solving the SCA problem, you will not be able to use the NFC capabilities on Apple's Core NFC platform. Why? Because Apple has decided that no financial application should be able to use the NFC capabilities because they are scared of a competitor to ApplePay (thanks Apple). As far as I know, you can use the Android NFC capabilities but don't quote me on that. Thus, you are stuck with QR codes, something western consumers tend to look down upon. Thus, that is your second barrier to creating a good solution on the consumer side. 3. Distribution: in order to distribute this, you must bring out new hardware. This is expensive to produce and integrating into merchant's POS systems is super expensive as well. Furthermore, merchants don't like having several payment devices standing around.

Long story short, merchants hate paying card fees. However, it is damn near impossible to build a solution that is convenient for the consumer who you are intending to convince, thus I do not see this Oligopoly being broken for a long time.

To be clear, I am mostly talking about "card payment" in the offline market. The online market is a different story.

Swedish here, check Swish [1] a mobile app allowing free payments for individuals and between individuals. The only downside is that it is still "a cooperation between six of the largest banks in Sweden."

Invoice shopping became very popular with companies like Klarna (which is also a bank now afaik) and others, you buy, get the product and pay 14 days later using an invoice sent to you.

[1] https://www.swish.nu/about-swish

Canada has always had something similar, called the Interac network and many banks now just offer electronic funds transfer directly. I think the OP was more talking about payment networks to merchants.

What do you mean by payment networks to merchants ?

Very difficult, because those companies are literally taking no fees, most of the fee is actually cashed in by the banks when they decide to approve a transaction. To compete with Visa and Mastercard you need to be the bank, lower the fees, and propose the same level of transaction performance. And that's a challenge.

There is some space in the cross-country payment market though, and some (a lot, actually) in the B2B payment market too.

Open Banking/SEPA/NPI should open that up. Technically P2P payment is possible. And fintech startups are already moving in that direction.

To answer your question; Regulation could disrupt the networks. Building a new network piece by piece. A new globally accepted currency, a distributed network, and a new card issuer (virtual and physical). TLDR; I think it is very difficult.

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