H.R. 627: a discussion of commodity (part 2)
This is part 2 of a 3 part series. Part one is located here.
As a brief administrative note. It is worth mentioning that H.R. 627, the “Credit Cardholder’s Bill of Rights Act of 2009”, has been signed by the president recently (in the last 15 minutes) as I am writing this missive. You can read more about the passage at any news site that carries AP syndicated content…But Yahoo! News has the first I stumbled upon in a search.
As I postulated yesterday, if the regulation of credit issuance in this fashion is indicative that credit is a commodity…then the rest of the credit ecosystem must be impacted by this recognition of the commodity nature.
So, is card acceptance commoditized? I promised to discuss this topic in both an experiential and anecdotal fashion. Let’s start with a simple google search. Assuming that I’m a merchant who is interested in accepting cards at my retail location…I can justify a workflow in which the search for a solution would be initiated via a simple web search. Perhaps using the terms “accept credit cards”.
What are the results?
3,370,000 results returned in 0.31 seconds*
Let’s begin by looking at the sponsored links. If you aren’t familiar with sponsored placement, think of this simply as a “pay to play” placement of your results based on the content of a search. Or, attempting to reach a target market by spending money on ensuring your links appear at the top of the page or in the sidebar.
Before I digress much further, it is important to note that I am not commenting on the business who have taken these advertisements. In fact, for the business segment that they are in…it is quite logical. Instead, I am postulating that by analyzing these advertisements, thematically, we will be able to make an assertion about their view of their target market as companies selling card processing and merchant accounts.
Perhaps a list of intriguing words is in order:
- Rates as low as
- Guaranteed Lowest Costs
- Free Setup
- Low startup costs
Rather than belaboring the point, I think you can divine where I am headed. As a reminder, competition based on price…to the diminished importance of brand or other factors…is a simple definition of a commodity. As I said earlier, I am familiar with several folk at the companies represented in the images shown in this post. They know what they are doing. And, they are competing on price.
Credit acceptance is commoditized.
Let me give you an experiential example. I sit on the board of directors for a Denver area non-profit focused on community development and providing training and services for a low-income neighbourhood in Denver. One of the things the organization struggled with was how to accept card based donations…both one-time and recurring. The solution they are using at present, while not my preference, meets there needs and until the website redesign is complete is functional.
However, we have been approached (on more than one occasion) by an ISO** selling processing services. In one, rather humorous, season we had several ISOs bidding for service simultaneously. Keep in mind that we are a relatively small organization…the volume (both transaction and dollar amount) are negligible at present. Watching these folk sell services to the non-profit is what cemented, for me, the realization of commodity service.
At one point, they both actually asked to be in the office with each other at the same time and, for lack of a better term, engaged in a verbal bidding war. Interchange plus 10 basis points, fixed percentage, refunded startup costs at specific volume, all the options were placed on the table. In the end, we stayed with our current solution…and I learned that the concept of a “value sale” was lost on the folk who engaged us.
In fact, both ISOs (separately) offered to install a terminal in the building as a “gift.” Not of much utility for an organization looking to expedite their online donation process. Another ISO offered the specification for the First Data Omaha platform so we could perform a direct integration…
It was, simply, a commodity sale. Competition on price…not competition on value.
So what are we to do about this situation? Is there a way, in a commoditized market, to add value? Or is adding value on top of a commodity simply creating a tenuous hold on a niche? What, if anything, does this have to do with innovation?
Part 3 will be placed online Monday morning.
In the interim, I desire to know your thoughts. Do you agree with my assessment so far? 4 years ago…it felt as if those referring to the card acceptance/processing space as commoditized were a bit like a prophet in the wilderness. Wild hair, eating honey and locust, perhaps disheveled, and speaking things that no one wanted to hear. In my opinion, this attitude has shifted drastically in the last 18 months to a state of tacit acceptance. Agree or Disagree?
What’s your perspective? Agree? Disagree? Anything to add? Critiques? The comment form is below…
*For your own edification, feel free to perform the search here.
**Independent Sales Organization
May 22, 2009