Payment Tender Adoption: It’s Not About the Card

As I mentioned Monday, I spent the last few days at the PrePaid Card Expo in Las Vegas.

The PrePaid segment has always been rather intriguing to me.  The "bucket" of PrePaid encompasses a vast range of implementation and workflows.  There are gift cards (closed and open loop), loyalty programs, traditional stored value, programs targeted at the unbanked…even Homeland Security had a booth at the event.

During the presentation by Chip Kahn (CEO, IP Commerce) and Rene Pelegero (Sr Director, Industry Relations & Strategy, PayPal), there was an interesting discussion regarding the myriad of options both inside and outside of prepaid.

While the presentation was entitled Adapting Your Card Payments System to Dovetail With the Latest Alternative Web-based Payment Platforms, I found it more of an interesting thought exercise in how decisions are made about payment acceptance (merchant) and payment initiation (consumer).  The combination of tenders available at a "channel (online, offline, call center, kiosk, POS, etc) is referred to as the payment mix.  What is it that drives the decision making process around this payment mix?

To quote Rene’s presentation:

Consumer preference is driven by

  • familiarity
  • safety
  • convenience
  • rewards

Merchant preference is driven by

  • acceptance
  • transaction cost
  • sales lift
  • operational cost

With that in mind, the PrePaid market typically drives consumer preference based on:

  • access
  • convenience
  • privacy
  • safety

What was most interesting about this scenario was comparing these preferences to other payment modalities.  Consider, for example the above criteria applied to decoupled debit (one of Rene’s examples).  Decoupled Debit fulfills the 4 criteria above very simply.  The only exception would be that the access is limited to those consumers with a traditional bank account.  Perhaps that is why it is such a hotly growing segment.

Consumers will adopt new payment methods based on their own perception and preference, not based solely on widespread acceptance (although that helps).  As such, the merchant MUST be positioned to rapidly integrate and accept new payment methods.  In my experience discussing commerce with small businesses, their "decision point" of a new tender is often initiated by someone arriving in their location and offering them a new tender.  The interaction is something like this:

"Do you accept this?"

"Umm.  No."

"You should."

In my opinion, the "sales lift" element of the merchant preference equation is frequently the most powerful.  The decision process is always driven by convenience (can I get it?) and pricing (how much does it cost?).  But, the initiation of the thought process, and the ultimate decision is predicated upon an increase in sales.

That is why we see slow adoption of many new tender offerings.  The focus on a single side of the equation (either merchant or consumer) is not sufficient and does not provide a compelling reasons for acceptance.

It is not about the card. . .it is about the preference of both audiences.  Meeting needs, not just marketing.

NOTE:  I am attempting to obtain permission to upload the slides for public consumption.  If I am fortunate to obtain, I will replace this note with a slideshare link.

What’s your perspective? Agree? Disagree? Anything to add? Critiques?
The comment form is below. . .
(Seat 11A LAS to DEN)

March 6, 2008

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