This headline surely sounds preposterous, but is it? It’s hard to believe that multi-billion-dollar juggernauts such as these two could lose their relevance, or even go out of business. It’s not without precedent. Over the past century, companies that you never imagined have either lost their relevance, gone out of business, or merged out of existence.
Companies like US Steel, AT&T, GE, and Kodak were all once international powerhouses in their day. Today they are fighting to stay relevant, let alone survive. But how could two powerhouses like Mastercard and Visa, which each do trillions of dollars in volume, sink from the world stage? One word: technology. Cheap and accessible technology.
If technology could take down two legacy companies like Visa and MasterCard, they could certainly use it to survive and stay relevant. This is true, if it weren’t for another word: legacy. Companies with legacy platforms have issues with staying on top of cutting-edge technology. What was considered “cutting-edge technology” then can be a drag on innovation today because companies can’t simply abandon “legacy” technology and start over with something new. These companies ultimately have to integrate multiple systems. This is what happened to AT&T and Kodak. With AT&T, they always had to consider maintaining a decades-old copper wire system when they planned for the future while upstarts did not. Upstarts could use the newest and cheapest solutions that were not so readily available before. Kodak didn’t want to cannibalize their legacy film business and disrupt their entrenched supply chain, so they turned their back on digital cameras, something they themselves later invented.
Legacy can be a blessing and a curse. In the case of MasterCard and Visa, the blessing is they have an entrenched user base. Millions of citizens around the world have cards with their logos in their pockets with millions of business terminals able to read those cards. The curse is their business structure. Mastercard and Visa are not lenders, nor are they equipment sellers. The lending behind the cards involves banks: Chase, Capital One, Citibank, Wells Fargo, and Bank of America. The equipment side includes many providers and processors. When you swipe your Visa or MasterCard at a store, Chase might be the card bank, but there are multiple other parties in a single transaction: payment facilitators, independent resellers, a card processor, the card networks, and more. Everyone wants a piece of the fee that’s generated.
So, what’s the problem here? There has been plenty to go around and everyone has been happy with the process for decades. All except the private lenders who have been locked out of the gravy train and politicians who believe it is unfair to small business. When unhappy businesses, technology, politicians, and boatloads of money come together, you can bet monopolistic legacy businesses are in for a change.
This brings us back to cheap technology. The rise of Real Time Payment (RTP) has changed everything. You might be familiar with the bank money transfer service Zelle and the non-bank transfer service Venmo. The ability to transfer money instantly by anyone from one person or company to another is changing the game. Currently the amount you can transfer at once is low, less than $5,000 in most cases. However, this number will surely go up as security improves and popularity rises.
Imagine going to a hotel and instead of presenting your credit card, you tap your phone to instantly pay from your bank account. Don’t want to give up those precious airline miles? No worries. The hotel may offer other amenities such as instant cash back, upgrades, or gifts that you could choose right on your home screen. Want time to pay for that charge? The seller or buyer could choose from multiple finance providers who would provide the best rates and quickly settle the transaction.
Technology and instant money transfer with open-source software is creating all sorts of financing opportunities to settle transactions and bypass the likes of Visa and Mastercard. We have seen a little of this with Apple Pay. No longer do you have to carry a card; you tap your phone. Yes, there is still a credit card connected, but there doesn’t have to be. Apple Pay could easily be Apple’s trojan horse to bypass Visa and Mastercard.
To be sure Mastercard and Visa aren’t going away anytime soon, both companies see the future and will do anything and everything to protect their legacy network. As the days and weeks tick away, don’t be surprised if you are not carrying that Chase bank credit card around, but instead zapping a terminal debiting your bank account while claiming all kinds of gifts and prizes from a variety of financial competitors vying for your business. As technology creates more opportunity for upstarts, one thing is certain: consumers will be getting the better part of the bargain.
If you are selling commercial goods or services in the 21st century, take a minute and give AeroFund Financial a call.