How Visa and Master Card Benefit from Working with Square
Today we publish a translation of the material about some features of the interaction of Square (a prototype of our Russian 2can service) and payment systems. This article is also relevant due to the recent news that MasterCard is going to change the rules of the game for services like Square. Many people, when they first saw a small device for a smartphone that allows you to read bank card data, most likely thought to themselves, “A funny thing, but it is unlikely to get accustomed.” However, in July 2011, it was announced that Square's daily transactions were $ 3 million. In November of the same year, this figure increased to 10 million. Square caught on! In confirmation of this fact, we can say that in November 2012, using Square, a large number of payment transactions totaling $ 27 million were completed (the annual volume of transactions amounted to more than $ 10 billion, and this is not including Starbucks payments).
With such volumes of payments, does the service interact with the world-famous payment systems - Visa and MasterCard? It's no secret that many investors and analysts, discussing the future of these giants, agree that services like Square and Google Wallet will be a deterrent for them.
Consider an illustration showing the pattern of interaction between partners. Here it is important to understand that many different actors are involved in the Visa and MasterCard transactions, and their model differs from the models used in American Express and Discover.
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Here’s what the Master Card process looks like:
Square is just one of the links in the chain, nothing more. According to Jack Dorsey, Square is not trying to replace credit card companies - the company is simply not interested in this (full text of the article) .
This is what Master Card experts think about the real problems of their own company:
in the near future, the sphere will greatly change due to competition, including due to the refusal of participants in transactions from the services of intermediaries to reduce the costs of the process.
Possible risk factors:
Based on this report, we can distinguish two scenarios in which companies like MasterCard may have serious problems:
I believe that the first reason is very unlikely, while reason number 2 is more likely. Let us consider the situation in which various market players will unite in alliances to strengthen their own positions and oust stronger competitors from the market. In fact, this is much more difficult than it seems. I practically do not know people who would not have a card with the logo of Visa or Master Card. The table below contains interesting information about the performance of key market players.
Visa and MasterCard already control a large proportion of transactions worldwide, and this proportion is increasing every day. The daily use of cards extends to all areas of our lives so rapidly that cash begins to disappear. I know people who cannot pay if their card stops working, simply because they never carry cash with them.
Visa and Master Card jointly issued more than 3 billion active bank cards, and the total amount of transactions exceeds $ 100 billion a year. To compete with them, the new company (or jailbreak) needs to build a huge data processing system, and also somehow convince people to switch to their system. You will also need large capital with the expectation that the business will not be profitable for a long time. And finally, it is worth paying attention to the fact that the whole world is already technically adapted to the existing system, and in order to initiate changes, the new product must be much more profitable and more convenient for the user than all existing ones.
Now consider the threat from the existing "additional" services. If we talk about Square, then companies like this are interested not so much in the profits that can be obtained from transactions, but in the information that can be obtained in the process of their implementation.
Few threats come from Google Wallet. I personally love to buy new wallets. The only thing that unites them all is that in all my wallets I can put credit cards and this is similar to the very essence of Google Wallet. I do not use this service, but potentially I am interested in one day to start using it. For example, I use the Starbucks application to buy myself a coffee, but I still need to use my credit card every time I want to replenish the account of the application. Personally, I have not found anything new for myself that would finally supplant Visa or MasterCard.
These companies have experimented in the past with added value in the form of additional amenities, but it is unlikely that any of them have achieved significant success. What they are good at is building and maintaining networks that authorize payments faster than you can blink. And, in my opinion, this is what they should focus on.
Looking at the financial indicators, it can be understood that Visa and MastedCard invest a large amount of funds in the development of their own networks. Both companies benefit greatly from companies such as Square and Google, adding value to their services to consumers and thus encouraging them to make more payments.
Summarizing, we can conclude that services like Square are more likely partners than competitors. Visa and Master Card will not experience difficulties in the market in the next few years. This situation has become possible due to the huge volume of transactions carried out throughout the world, as well as additional services provided by other companies that motivate people to use the cards. At the same time, the latest news shows that e-commerce giants are concerned about the loss of control over statistical data (see link ), which can lead to changes in the business model or the pattern of interaction between market participants.
With such volumes of payments, does the service interact with the world-famous payment systems - Visa and MasterCard? It's no secret that many investors and analysts, discussing the future of these giants, agree that services like Square and Google Wallet will be a deterrent for them.
Consider an illustration showing the pattern of interaction between partners. Here it is important to understand that many different actors are involved in the Visa and MasterCard transactions, and their model differs from the models used in American Express and Discover.
')
Here’s what the Master Card process looks like:
Square is just one of the links in the chain, nothing more. According to Jack Dorsey, Square is not trying to replace credit card companies - the company is simply not interested in this (full text of the article) .
This is what Master Card experts think about the real problems of their own company:
in the near future, the sphere will greatly change due to competition, including due to the refusal of participants in transactions from the services of intermediaries to reduce the costs of the process.
Possible risk factors:
- Participants in transactions in some countries will try to exclude MasterCard as an unnecessary link in the process. For example, companies can begin to carry out transactions, directly interacting with the buyer or create large associations with each other.
- The upcoming significant technological change will bring innovation to the payment process. These changes may reduce the use of MasterCard products.
Based on this report, we can distinguish two scenarios in which companies like MasterCard may have serious problems:
- If new companies can overcome numerous barriers and fully enter the market;
- If someone invents a more user-friendly system.
I believe that the first reason is very unlikely, while reason number 2 is more likely. Let us consider the situation in which various market players will unite in alliances to strengthen their own positions and oust stronger competitors from the market. In fact, this is much more difficult than it seems. I practically do not know people who would not have a card with the logo of Visa or Master Card. The table below contains interesting information about the performance of key market players.
| Company | Amount of payments (billion) | Total (billion) | Total number of transactions (billion) | Cards (million) |
|---|---|---|---|---|
| Visa Inc. | $ 3,768 | $ 6,029 | 77.6 | 2011 |
| Mastercard | $ 2,430 | $ 3,249 | 39.8 | 1059 |
| American express | $ 808 | $ 822 | 5.3 | 97 |
| Discover | $ 114 | $ 122 | 1.9 | 59 |
| JCB | $ 160 | $ 166 | 1.4 | 77 |
| Diners club | $ 28 | $ 29 | 0.2 | 6 |
Visa and MasterCard already control a large proportion of transactions worldwide, and this proportion is increasing every day. The daily use of cards extends to all areas of our lives so rapidly that cash begins to disappear. I know people who cannot pay if their card stops working, simply because they never carry cash with them.
Visa and Master Card jointly issued more than 3 billion active bank cards, and the total amount of transactions exceeds $ 100 billion a year. To compete with them, the new company (or jailbreak) needs to build a huge data processing system, and also somehow convince people to switch to their system. You will also need large capital with the expectation that the business will not be profitable for a long time. And finally, it is worth paying attention to the fact that the whole world is already technically adapted to the existing system, and in order to initiate changes, the new product must be much more profitable and more convenient for the user than all existing ones.
Now consider the threat from the existing "additional" services. If we talk about Square, then companies like this are interested not so much in the profits that can be obtained from transactions, but in the information that can be obtained in the process of their implementation.
Few threats come from Google Wallet. I personally love to buy new wallets. The only thing that unites them all is that in all my wallets I can put credit cards and this is similar to the very essence of Google Wallet. I do not use this service, but potentially I am interested in one day to start using it. For example, I use the Starbucks application to buy myself a coffee, but I still need to use my credit card every time I want to replenish the account of the application. Personally, I have not found anything new for myself that would finally supplant Visa or MasterCard.
These companies have experimented in the past with added value in the form of additional amenities, but it is unlikely that any of them have achieved significant success. What they are good at is building and maintaining networks that authorize payments faster than you can blink. And, in my opinion, this is what they should focus on.
Looking at the financial indicators, it can be understood that Visa and MastedCard invest a large amount of funds in the development of their own networks. Both companies benefit greatly from companies such as Square and Google, adding value to their services to consumers and thus encouraging them to make more payments.
Summarizing, we can conclude that services like Square are more likely partners than competitors. Visa and Master Card will not experience difficulties in the market in the next few years. This situation has become possible due to the huge volume of transactions carried out throughout the world, as well as additional services provided by other companies that motivate people to use the cards. At the same time, the latest news shows that e-commerce giants are concerned about the loss of control over statistical data (see link ), which can lead to changes in the business model or the pattern of interaction between market participants.
Source: https://habr.com/ru/post/175569/
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