Cellum Insights

Seeing competition where there is none

Guest post by Cellum’s Director of Communications Edit Pápai

Like any other fast-moving tech sector, the mobile payments space has seen its share of false warnings and missed predictions. In my time as Cellum’s Director of Communications I’ve seen bogus scare stories about the security of m-payments, incorrect forecasts about which company would do what, and other “information failures.”

Edit Pápai

Cellum’s Director of Communications Edit Pápai

Now comes another apparently widespread misconception about m-payments, namely that they represent an existential threat, or even competition, to Visa, MasterCard and other card schemes.

We can see this theory playing out in stories like this and this, about supposed attempts by Visa and MasterCard to “fight of the competition” posed by such services, or otherwise to remain relevant as an increasing volume of transaction migrates to mobile and other non-plastic forms of electronic payment.

The theory behind such stories is easy to understand, and I can see how on a superficial level it would make perfect sense to assume that the primary objective of emerging mobile payment services like Apple Pay or Android Pay would be to replace the card schemes in the transaction chain linking consumer to merchant. It would also be easy for those not working in the industry to confuse these services with alternative payment firms like PayPal, which are in fact competing with the card schemes. Likewise, I don’t mean to unduly criticize tech and business journalists, because confusion over m-payment is often due to the insufficient or incorrect positioning by firms in the space, and otherwise the fault of communications folks like me.

All the same, I think it is important to set the record straight when there are misunderstandings, in this case to explain why there isn’t actually any meaningful competition between many of the best-known mobile payment services – including Apple Pay and Android Pay – and the card schemes.

This is because services like Apple Pay are all powered by bank cards. Mostly this means Visa and MasterCard, and in some markets AmEx and private-label cards as well. And with each passing week services like Samsung Pay announce the addition of support for new cards, so it’s not as if these services are moving to “cut out” the card schemes.

Indeed, even when it comes to online checkout – where MasterCard and Visa are making a big push with their MasterPass and Visa Checkout products – I would argue that the notion of a “zero-sum-game” with m-payment services is false. Just consider this Reuters article from late last month, which offers plenty of details on Samsung’s online checkout service, but somehow fails to mention that users are likely to fund it with bank cards.

So what may look like frenzied moves by the card schemes to beat back competition from m-payment services is in reality a long-running and generally well-executed strategy to cooperate with all sorts of payment enablers (m-payment companies, watch manufacturers, etc., etc.) Because these firms are perfectly placed to understand that it doesn’t matter if the form factor is physical plastic or a mere digitized representation thereof. Instead, what matters is that in the end, the consumer is able to quickly, efficiently and safely spend their money, and the card scheme’s network is able to offer value to said consumer.

Like other successful wallet providers, my firm has followed this same strategy, aiming not to compete with banks and card schemes, but to extend their reach via smart devices and other technological channels that have not even yet been envisioned.