Pursuing Digital Payments for the Credit Card-less
By Rick Moss
Imagine you’re nineteen and off at college. (Pretty good so far,
right?) You’re standing in line at your student union’s c-store, neon-green
energy drinks and crunchy, pizza-flavored consumables corralled with one appendage.
With another, you’re texting Jordan, who just got Halo III and is anticipating
your arrival. You step up to the cashier and just that instant realize you’re
out of cash. (Did we mention that you’re nineteen?) Oh, misfortune!
But wait
… almost forgot. A few days ago, you went online and signed up for a FaceCash
account. Dad said, no credit cards — can’t go into more debt with all those
nasty loans. So here’s a way Dad can transfer money to your account in advance
for times when essential provisions are needed. And when you get a part-time
job, you can transfer funds in as well. (Yeah, right.) So cool … ‘Droid-in-hand,
you swipe up your FaceCash app, displaying your unique bar code and unique…
ur … face. The cashier scans it and debits your account. Sweet!
Life should
be so simple. At least, so believes Aaron Greenspan, president and CEO of Think
Computer Corporation, developer of the FaceCash platform. Aside from the attraction
of quick, secure, mobile digital payments for consumers who prefer not to involve
credit cards accounts, FaceCash is hoping to lure retailers with lower transaction
fees and simpler terms.
According to Mr. Greenspan, although quoted rates can
be much lower, once all the fees and incidentals are added up small and mid-sized
chains can easily pay over three percent to an interchange provider. “We’re
coming in at 1.5, which is a lot more attractive,” he told RetailWire.
Also,
since the retailer is just debiting an account, there is only one account number
involved. “So, it’s also a lot simpler,” said Mr. Greenspan. “You
know, the MasterCard fee agreement is, like, 126 pages long, and we’re
just one number.”
Because FaceCash is web-based, it’s designed to be a
quick start, especially for small merchants with limited tech resources. The
only hardware necessary is a barcode scanner.
FaceCash has been operational
for about a year. Looking at the “Merchant
Map” on the FaceCash site, however, some may come away thinking Mr. Greenspan’s
aspirations are somewhat quixotic. FaceCash is currently installed in only
10 locations: eight in Palo Alto, CA (near company HQ) and two in Cambridge,
MA (near Mr. Greenspan’s alma mater). Although the company is now doing a small,
localized test with Subway, Mr. Greenspan admits he is up against a grab bag
of state regulations, and lack thereof.
“We have to have money transmitter licenses in every state, usually. And
I say ‘usually’ because there are seven that are exempt, California being one
of them. And they’re not so much exempt even as they just don’t have
laws on the books about money transmission. But, 43 states do, plus D.C. …
Generally, if I want to expand nationally, I just can’t yet. So, we’re
waiting on this whole process to get done and it’s a long, painful process.”
Discussion Questions: Are non credit card-based digital payments an alternative
that retailers should be offering their customers? Do you see retailers jumping
on this bandwagon given the possibility to save on transaction fees?
[Author’s note] Granted, entrepreneurial ideas live or die on their own
merits, but FaceCash comes with a good pedigree. It happens that Aaron Greenspan
is the man who put The Facebook online at Harvard before Mark Zuckerberg decided
to follow his lead. He talks about it in this
blog post…]
Any system that encourages incremental spending and — if viable — should be encouraged.
Conceptually, it’s an interesting way to think about m-commerce. But, there are three big hurdles to get over that I can think of: 1) regulation/approvals, 2) retailer adoption, and 3) consumer adoption. My hunch is that joint ventures between banks and credit card companies would have an easier time with all of these and that perhaps the cell phone companies will be able to just load their own apps on new cell phones driving adoption up in a hurry. But, m-commerce is the Wild West out there at the moment, so anybody could win.
Sidenote: I have stood in line behind people trying to use a debit or credit card for a $2 purchase countless times and it is ALWAYS slower than cash, contrary to what the advertising says. So, there is an opportunity for someone to figure out how to speed this up.
This is certainly something we would have considered other than credit cards for our college-age kids if available locally. If retailers can handle this without having to jump through hoops, it seems a viable means to achieve incremental sales increases.
FaceCash has a long way to go and plenty of hurdles to jump, but I like the idea. Will it catch on with merchants and consumers? Too soon to tell. That said, good customer service does include offering shoppers the ability to pay in the manner they choose and in the way they feel is most convenient. Whether it’s cash, check/debit, credit, barter, gift card, mobile payment or some other form of payment, retailers should explore every option that makes sense for their business and their customers.
There’s always a card fee for retailers, passed along to shoppers who use card-based services. Credit cards or debit cards (including the superb NetSpend.com service). No-brainer. As Rick’s report noted, this feature is still in negotiation with FaceCash. It matters, as I’ve discovered in paying multi-thousand-dollar invoices from suppliers for my e-commerce businesses with a card. They add the fees onto my charges, despite the fact that they’re getting paid faster than they would if they had to wait for a check in the mail. It seems like they’d see this obvious balancing of payment costs, but they don’t yet.
Naturally, per the question, all retailers offer their customers “non credit card-based digital payments.” They’re called debit cards. It’s all I ever use, and my debit cards have been accepted by every retailer from which I purchase. Plus, at Chase, I get usage points. Another no-brainer. And a question for Al McClain; How can we make retailers eliminate the extra questions asked of card users so the process can be sped up? Do you want cash back? Would you like to contribute to XYZ charity? Do you think the 49ers will win tonight? 🙂 Clearly, these are the “features” that slow card use in lieu of cash. Plus, my own pet peeve, we of above-average height must practically kneel to see and use the little keys provided (under a small privacy hood) for entering PINs. That takes even more time.
I find the whole topic of electronic payment substitutes for cards/debit credit fascinating and think we’re going to see some really revolutionary change happen there. Furthermore, these changes could come from some pretty unlikely directions.
The truth is, the credit/debit card business is an industry that is just crying out to be cut into. Think about it…it’s an industry that routinely overcharges its customers with impunity, is blatantly unfair with merchants and to a great extent, preys on human weakness.
Whether it’s FaceCash, Facebook, Google or someone else, somebody is going to take a crack at disintermediating credit card companies. We not only have the technology but also the right atmosphere of public sentiment to make it happen.
I think Doug hit the nail on the head. The credit card companies / banks / processors have been killing us (retailers) for years with high fees, PCI compliance, unfair chargebacks, etc.. Technology is moving too fast for this to continue and it is just a matter of time. We pay tens of thousands of dollars a year in “processing fees” and it has really got out of hand. I would welcome new technology in my business that would not only cut costs, but make my customers’ lives easier.
Payments are constantly evolving and the under-/non-banked market presents tremendous opportunity for companies offering new payment technology. Among the keys are ease of use, wide acceptance and of course, security.
FaceCash is an interesting concept but it is going to have a lot of competition. One of the recent entrants into new payment tech space is Isis, a joint venture of AT&T, Verizon and t-Mobile, with help from Discover.
Between mobile devices, biometrics and new card technologies, the payment space is really fascinating these days.