Innovation and evolution of the payments industry

Moving Money: The Future of Consumer Payments

Volumn , Issue , 2009, Pages 36-76

  Evans, David S ^a   Schmalensee, Richard ^b  

^a Market Platform Dynamics   (United States)

^b MASSACHUSETTS INSTITUTE OF TECHNOLOGY   (United States)

Author keywords

[No Author keywords available]

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EID: 80052002776     PISSN: None     EISSN: None     Source Type: Book    
DOI: None     Document Type: Chapter

References (38)

1. The payments industry is going through a period of creative destruction that is the result of fundamental changes in institutional arrangements, business models, and globalization over the last two years. MasterCard and Visa have transformed themselves from essentially nonprofit bank cooperatives to for-profit publicly traded firms with market values of $29.68 billion and $55.83 billion, respectively, as of September 8, 2008. A new global player has emerged with China Union Pay-a state-owned bank cooperative in China-having more than 1 billion cardholders with acceptance in twenty-seven countries and regions, rapidly expanding its footprint throughout the world. Mobile phones and related communication technologies are being used instead of traditional magnetic stripe cards for making electronic payments in a number of countries. For more details, from the perspective of 2007, see David S. Evans, "Capitalizing on the Industry's Inflection Points", Our Story, pp. 45-61.
2. For further details, see Smart Card Alliance (www.smartcardalliance.org)
3. and the NFC Forum (www.nfc-forum.org).
4. David S. Evans and Richard Schmalensee, Paying with Plastic, 2nd ed. (MIT Press, 2005).
5. For more information on payment card networks refer to Dee Hock, One from Many (San Francisco: Berrett-Koehler Publishers, 2005).
6. "POS Terminal Shipments Worldwide", The Nilson Report, no. 866 (October 2006) (www.nilsonreport.com/issues/2006/866.htm).
7. Evans and Schmalensee, Paying with Plastic.
8. When asked, "When paying at the point of sale, I wish I could pay by using", 32 percent cited the mobile phone as important, 48 percent said a contactless card, and 38 percent said by not having to pull out a plastic card.
9. For a historical discussion of merchant reactions to merchant discount fees, please see Evans and Schmalensee, Paying with Plastic.
10. Market Platform Dynamics Survey of 750 small business customers in April 2008. For a complete discussion of survey results in a Market Platform Dynamics white paper, see Karen L. Webster, "The Next Payments Frontier", White Paper (Cambridge, Mass.: Market Platform Dynamics, May 2008).
11. R. Mitchell, "No Contact: Could Smart Phones Spur Contactless Payment Card Adoption?" ComputerWorld, June 11, 2007.
12. Federal Reserve System, "The 2007 Federal Reserve Payments Study", December 10, 2007.
13. Karen Webster, "Tap and Grow? The Case for Contactless Payments in the U. S.", PowerPoint presentation, Federal Reserve Bank of Boston, Boston, Mass., May 21, 2007.
14. For a general treatment see David S. Evans and Richard Schmalensee, Catalyst Code (Harvard Business School Press, 2007).
15. For the piece that introduced the concept, see Jean-Charles Rochet and Jean Tirole, "Platform Competition in Two-Sided Markets", Journal of the European Economic Association 1(4) (2003):990-1029.
16. There is considerable uncertainty over the relative costs of alternative forms of payment. See Daniel D. Garcia-Swartz, Robert W. Hahn, and Anne Layne Farrar, "The Move toward a Cashless Society: A Closer Look at Payment Instrument Economics", Review of Network Economics 5(2) (2006):199-228.
17. Garcia-Swartz, Hahn, and Farrar, "The Move toward a Cashless Society."
18. See Sears Holdings Archives, www.searsarchives.com, for additional historical information.
19. Pay By Touch Press Release, "Pay By Touch Helps the World Go Walletless with Finger Scanning Payment Systems", Business Wire, July 22, 2005.
20. Matt Marshall, "Pay By Touch in Trouble, Founder Filing for Bankruptcy", VentureBeat, November 12, 2007.
21. "Octopus Cards: Statistics" (www.octopuscards.com/corporate/ why/statistics/en/index.jsp).
22. "Octopus Cards: Payments" (www.octopuscards.com/corporate/ application/payments/en/index.jsp#Link02).
23. Evan Ramstad, "Electronic Money Card in Hong Kong Is a Hit", Wall Street Journal, February 19, 2004.
24. Aite Group, "Contactless Payments and NFC in the United States: Beyond Science Fiction" (January 2008). Their reports also suggest that this number will increase to 217, 000 by 2014, representing less than 3 percent of all merchant locations.
25. Refer to the BillMeLater corporate website (www.billmelater.com).
26. David S. Evans, "The Economics of the Online Advertising Industry", Review of Network Economics 7(3) (2008):359-91.
27. The Senate Commerce Committee held hearings in Washington, D. C., on online advertising and privacy (for a summary of that testimony, see www.searchengineland.com/080710-090207.php). The European Parliament held similar hearings in January 2008.
28. See Cellfire's website (www.cellfire.com).
29. See Tom Eisenmann, "Inside the Google Money Machine", Harvard Business School, February 1, 2008.
30. Nick Jones, "Important Mobile and Wireless Market Directions 2008 to 2012", Gartner, Inc. (2008).
31. Jason Chapman, Carolina Milanesi, and David A. Willis, "Key Trends in Mobile Devices, 2008-2009", Gartner, Inc. (2008).
32. Jason Ankeny, "iPhone App Store Tops 100 Million Downloads", Fierce-MobileContent, September 10, 2008.
33. George Perros, "GPS-Enabled Mobile Devices", ABI Research (2008).
34. On September 25, 2008, Visa introduced mobile payment ser vices via Google's Android platform and Nokia by yearend 2008. Visa has publicized that the service will include initiatives such as mobile applications for Android that will allow Chase Visa cardholders to receive mobile notifications following making a transaction, receive offers from merchants using Android's LBS technology, as well as make contactless payments, remote payments, and money transfer. Jason Ankeny, "Visa Expands M-Payment Service via Android, Nokia", FierceMobile-Content, September 25, 2008.
35. Frost & Sullivan, "Social Impact of Mobile Telephony in Latin America" (GSM Association, 2006) (www.gsmlaa.org/files/content/0/94/ Social%20Impact%20of%20Mobile%20Telephony%20in%20Latin%20America.pdf).
36. Olga Morawczynski, "Surviving in the 'Dual System': How M-PESA is Fostering Urban-to-Rural Remittances in a Kenyan Slum", University of Edinburgh, 2008.
37. Associated Press, "Cell Phones Reshaping Africa", CNN.com, October 17, 2005.
38. Richard Thaler and Cass Sunstein, Nudge (Yale University Press, 2008).