Aneace Haddad, founder and chairman of European
payment software developer Welcome Real-time, speaks to Cards
International about the evolution taking place in the payments
industry, and how banks can learn from non-bank players like Google
Checkout in adding value to the payment experience.
Evolution seems to be a theme for the payments
industry at the moment, and Aneace Haddad, founder and chairman of
European payment software firm Welcome Real-time, is certainly
ahead of the curve if the success of Welcome Real-time in the
rewards programmes sector is anything to go by.
However, Haddad, in this interview with Cards
International, opines on the emergence of non-bank players and the
strategy his company is pursuing in order to stay ahead of the
curve. It is clear interchange around the world is under threat,
but the issue of interchange does not just affect issuers and
merchants on a macro-economic level, it also affects various other
components in the entire payments chain.
Haddad says: “Since bank loyalty programmes
have been financed pretty much entirely off interchange, what is
looming is something that is pushing banks to really look
differently at how they are doing loyalty. We saw that happen in
Australia where the banks had to cut back their points programmes.
At least one of them switched over to American Express because Amex
was not covered by the Reserve Bank of Australia decision, and they
were able to continue giving higher merchant discount
Recently proposed legislation in the US, such
as the Credit Card Fair Fee Act, is just another example of
merchant and consumer pressure mounting on interchange and,
combined with other interchange-focused regulatory initiatives
around the world, Haddad says interchange is under attack like
never before.
“There are a lot of different angles that
merchants are pursuing to hit interchange, and I think all of those
really point to the whole interchange model losing steam,” he says.
“It is hard to see how the schemes are going to protect
interchange. Everything I have been writing about in my blog
[] is about how you add value to payment
cards so that interchange is justified.
“Right now, I am starting to lose faith that
the schemes are going to be able to do that. It feels like the
schemes are not really doing anything to protect interchange. The
only thing I see the schemes doing right now is litigation.”
The irony is that while the card schemes are
fending off merchant-orientated attacks on interchange, the card
schemes are simultaneously trying to persuade merchants to accept
contactless payment. The elimination of federal regulations (see
CI399) requiring signatures for transactions under $25 means that
for some merchants, the incentive to sign up for contactless
payment is meaningless.
“The merchants are saying transactions in that
category are already a lot faster for them, and contactless does
not really bring any additional benefits,” Haddad says. “What
merchants are saying is that they want interchange reduced on
contactless transactions, and the issuers and schemes are saying
that they’re not going to do that. Without any additional benefits
of contactless for merchants, I do not see how the schemes are
going to get contactless to be accepted.
“The only way I can see acceptance growing is
if the banks, like the banks in Korea have done, all automatically
issue cards with the contactless chip included. Then slowly, as
merchants upgrade their terminal, they have a reader built in
without any additional cost. But it is hard to imagine the
merchants upgrading just for contactless,” he adds.
With consumers in many developed card markets
being spoilt for choice in terms of rewards and loyalty programmes,
many industry experts have touted technology innovation as a key
differentiator – whether it be through incorporating contactless
functionality into card-based loyalty programmes or through instant
redemption at the POS. But, according to Haddad, this pales in
significance when compared to the fundamental business
re-evaluation that the interchange issue is forcing banks to
“I do not think innovation from a technical
standpoint is the exciting thing. The business relationships and
the type of business models that are evolving in the face of a
maturing market, interchange pressures and so on, are more
interesting,” he says.
This business model evolution is taking many
forms, depending on which market is being examined, but Haddad
points to Bank of the Philippine Islands (BPI) as being one example
of a bank that is focusing less on the conventional ‘loyalty’
aspect of rewards programmes, and more on promotional and marketing
activity at the point of sale in order to drive cardholder
He says: “BPI has done a programme where they
look at the payment platform as a promotional and marketing
platform with their merchant customers, and the merchants are able
to do promotions on BPI cards. They have a very large card base
there, and giving merchants the ability to target cardholders more
effectively than the way they would normally target them has
created a lot of value for merchants.”
“We have got programmes in around 25 countries
that have similar programmes which do similar things with
merchants. Where we are going now is a new phase which is exactly
the same approach, but it is letting merchants do it on all cards
in their store, as opposed to a single bank’s cards.
“It looks at it from the acquiring angle and it
helps the acquirer bank offer new services to merchants directly
linked to payments, and lets the merchant create whatever
promotions they want. They use payment cards simply as a way of
identifying customers and trigger instant special offers at the
bottom of the cardholder’s receipt.”
This focus on promotional and marketing
activity at the point of sale is likely to increase as consumer
payment preferences evolve, regardless of which card is being used
to make purchases. Although with many markets seeing an exponential
growth in the use of debit cards for purchases at the point of
sale, debit in itself does present a few challenges in terms of
issuer profitability.
Haddad says: “When you look at loyalty from the
issuer standpoint, there is a problem with debit cards because the
interchange is so much lower, and the issuer can’t really finance
the same level of rewards programmes.
“However, you can look at it from a promotional
and marketing standpoint, and you can give the merchant the ability
to, for example, recognise a customer who is purchasing today but
has not visited the merchant in over 30 days.
“You can then give merchants the ability to
trigger an offer for the cardholder instantly at the point of sale.
From that standpoint, it does not matter whether it is a credit
card, debit card or prepaid card being used – it is simply that
there is a customer here now which the data shows has been here
before, but has not visited for a while, so the merchant can give
this offer to the customer to persuade him to come back.”
Welcome Real-time is also working on expanding
its efforts in the acquiring side of the payments business, which
Haddad says will take on more importance in the future as
profitability challenges impact the issuing side of the payments
“What we have been doing historically is
deploying our solutions with what we call large integrated banks,”
Haddad says. “These are banks that are involved heavily both on the
issuing side as well as the acquiring side. We sell a full solution
that works on both sides, and lets these integrated banks leverage
the issuing activities for the benefit of acquiring, while
leveraging their acceptance network for their own cardholders. That
has generated a lot of growth for us.
“What we are doing now is launching a subset of
that which just looks at the acquiring side. It creates a solution
for acquirers to help merchants do promotional marketing on all
cards accepted in-store. It really provides new value for
merchants, and is closer to the Google model such as AdWords and
Google Checkout. This is a new growth model that expands the number
of banks able to use this system, as they do not necessarily have
to be involved in the issuing side.”
In line with the evolution taking place in the
payments industry, Haddad says that although new propositions from
non-bank players, such as Google Checkout or PayPal, pose a
possible threat to traditional bank players, non-bank players are
at a distinct disadvantage, at least in the physical world.
However, banks should not miss the opportunity to learn from their
non-bank rivals.
“I think the traditional players have
tremendous strengths in comparison with non-bank players, at least
in the physical world,” he says. “When you go into the physical
world, it is much harder for a non-bank player to replicate what
the banks have in terms of the four-party model, where the issuing
side recruits cardholders and the acquiring network develops
acceptance and so on. That is a tremendous strength banks have in
comparison with non-banks. What banks can do is learn from
non-banks, for instance in the internet space, and see how to apply
those learnings in the physical space.
“To me it is an opportunity for some of the
banks to rethink what they are doing in payment and add a huge dose
of marketing to what they’re doing. A lot of banks are not going to
be able to do that because they are too locked into the past, but
there are some banks that are more marketing-savvy. They would be
interested in adding value from the marketing standpoint. That
could be a tremendous change in the industry.”