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Is It Time to “Cut the Card”?

April 25, 2015 by Jeremy Almond

What the Internet Did for TV, It Can Do for Payments


Recently my family made a momentous decision—we moved into a new house, hooked up our broadband Internet through a local ISP, and didn’t call the cable company to set up service. A few years ago, “cutting the cord” from cable was a bold move by a minority of brave (or just frugal) pioneers in the frontier of digitally streamed content. As any early adopter can attest, it required a lot of patience, limited viewing choices, and often the purchase of a separate device to sit in between your TV and router. Today of course, streamed content looks just as good as cable, the viewing options have exploded, and with an HD antenna, we can even watch network TV for big televised events for free (is anyone old enough remember when TV was free over the airwaves?).
cutting-up-credit-card-with-scissors
More and more customers are cutting the cord, and very few weep for the cable industry that Internet streaming services are displacing. Why? For decades, cable companies fought and overcame government regulations, establishing local monopolies that eventually became regional and national monopolies. Without any real competition, cable companies started to resemble the other dinosaurs of the 20th century, landline phone companies. High monthly costs, clumsy interfaces, buggy equipment and poor customer service drove customers away, and Netflix, Amazon and Apple were at the ready to snatch them up.

Four months after cutting the cord, we’re perfectly happy with our Smart TV and the wide world of streamed content available at our fingertips. It got me thinking—what will be the next dinosaur industry to get swallowed up by the Internet and a disruptive business model? Can you think of a business that enjoys a decades-old virtual monopoly, relies on an aging technology infrastructure and charges high fees, just because they can?

Hint: they're made of plastic
Credit cards. They have become the default payment method for both ecommerce and point-of-sale transactions. For consumers, they offer convenience, and most of us never even see our bills anymore thanks to “paperless” billing and autopayments. But peel back the top layer of the credit card industry, and what you’ll find lurking behind is a tangled web of entrenched players and middlemen, who profit from the inherent risk of lending both merchants and consumers money to perform even simple transactions. It’s not just Visa, MasterCard and American Express running the credit card industry—it’s banks and processors and POS equipment vendors and lawyers and insurance companies, all of whom combine to take a significant cut of merchants’ revenues in the form of transaction fees.

Is this really necessary, in the Internet age? If I can download a full-length feature film to my livingroom TV in seconds, shouldn’t I be able to send money as bits and bytes without involving a lot of middlemen? I think about all the new streaming content services I’m using. I pay for them using my AmEx card—how much longer are Netflix and Amazon and Apple going to put up with credit card companies taking 2-5% off the top of every one of their transactions? In a world where practically everyone has access to broadband Internet (in the U.S., at least), why are we sending money through closed, proprietary and expensive networks when Amazon can send a drone to deliver packages to our backyard?

CutTheCardBorder

This disparity probably doesn’t keep consumers up at night, but at PayStand we hear from merchants every day whose profit margins are made or broken by transaction fees. Even for large businesses who can negotiate slightly lower rates due to their transaction volume, a 2% fee off the top of revenues can add up to millions of dollars per year. Credit card fees are an equal-opportunity bummer.
 
New options for today, and tomorrow
Credit cards aren’t going to go away overnight, but there is hope for smarter and more affordable options for merchants. For example—eCheck is a way to transfer funds directly between bank accounts, much like a paper check does, but online. PayStand’s eCheck rail lets customers pay you direct from their bank account using their secure online banking login, even for recurring payments. Our eCheck rates are 0% with small fixed fees  ($0.25 up to $100, $1.00 up to $1000, and $2.50 over $1000). 

Bitcoin is being hailed by experts in both the tech and financial industries as the “money of the Internet.” As a virtual currency, it may be some time before it reaches widespread consumer adoption, but it is the best contender we know of to supplant credit cards. Bitcoin can be securely transferred “peer to peer,” directly between two parties with no fee. PayStand enables Bitcoin transactions as an optional payment rail in our checkout, for merchants who want to experiment with zero-fee payments.

Payments today are a lot like internet streaming services a few years ago—a blend of old and new technologies that must coexist until we can finally “cut the cord” or—“cut the card.” Just as Netflix started out mailing DVDs as a rental service, it had a long-term vision of Internet streaming which it phased in as technology improved and consumer demand grew. PayStand’s goal is to get credit card fees as low as possible in the short term, and phase in lower-cost, digital payment methods that leverage the open Internet and level the playing field for merchants.


Tags:   Bitcoin, eCheck, credit cards