The battle for big-data is moving to all levels of customer information. In an aggressive move, the two biggest credit card companies in the world, Visa and MasterCard, are joining forces to get the customer information they want and penalizing services that don't share the information.
Every time a card payment is processed by the ACH network, owned by the banks, both the issuing financial institution and the card's brand (Visa, MasterCard, Amex, or Discover) receive full details of the transaction: date, time, amount, and customer and merchant IDs. This information is invaluable for the financial institutions and credit card companies.
But digital or staged "wallets" are changing the playing field. Companies such as Google, Square and PayPal have been using intermediary payment cards for digital transactions without sharing the information with their users' banks and credit card companies. This trend will continue to become more bothersome to banks as PayPal gets into the physical payment business through their "in-store checkout" program. So far it has recruited popular retailers such as The Home Depot, Foot Locker, and Nine West. Not sharing data is unacceptable for the credit card companies, and they want to penalize that with higher fees.
The Visa and MasterCard fee will be charged on "staged" digital wallets, such as PayPal, Square, iZettle in Europe and Intuit's GoPayment, according to analysts. They intend to start charging the fee in June to companies that do not sign up for a new digital wallet operator registration process. This, payments consultant Tom Noyes says on his blog, requires that wallet providers pass both a Wallet ID and a Merchant ID to MasterCard for each transaction, ensuring that MasterCard can continue to build a detailed profile of a cardholder's spending habits.
According to a new report from Nomura Equity Research, "Now that PayPal has started moving to the physical point of sale, competitive intensity levels are rising as PayPal encroaches deeper into what has traditionally been the incumbents' turf."
"PayPal rides for free on the back of other business models," said Chris McWilton, MasterCard's president of US Markets at a conference last month. "I think they've got to be cautious that they don't get too big and start making people wake up and say, 'Wait a minute, I'm actually losing business here because of your moving into the physical space.' "
Initially, both credit card companies were going after Google Wallet as well, but recently they announced they are choosing Google Wallet as their preferred mobile payment system. This way banks can issue credit and debit cards both with Visa and MC logos and let users make payments with their smartphones or NFC enabled tablets. Until now Google was using a virtual credit card enabled in the NFC devices' wallet to allow users to pay tapping their phones, then charging the card associated with the service.
Google has been offering their Wallet service free of charge to banks and credit card companies to get access to customers' offline transactions. Now the mobile user who has the appropriate hardware downloads the app from their bank and can then use it to pay for small items with a tap of his or her smartphone. The bank and Visa or MC get the data they want, and Google gets the customer's offline shopping ledger.
Of course, the people who lose out in all of this are customers and CIOs. The customers give up their data to more people despite getting nothing in the bargain, and CIOs have to decide how much they want to be a party to the deal. Not only do they have to decide which wallets and payment options to support in the face of potential customer resistance, one has to wonder how long it is before card and wallet companies start asking for customer loyalty data or other non-transactional information.