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Mega Retailers Jump into Mobile Wallets [2023 Update]

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Today the Official Merchant Services Blog will continue with our Mobile Commerce theme. A group of 14 Major U.S. Retailers recently announced that they have decided to join forces and create their own mobile wallet application. The group, which includes Wal-Mart Stores Inc., Best Buy Co. and Target Corp., will call itself Merchant Customer Exchange, or MCX.

MCX has no official launch date as of today, but the merchants are determined to jump head first into the expanding mobile payments market. The network of merchants also includes 7-Eleven  Inc., Alon Brands Inc., CVS Caremark Corp., Darden Restaurants Inc., Lowes Co., Sunoco Inc., Sears Holding Corp. and the Publix Supermarket chains.

Merchant Customer Exchange

MCX seeks to corner a piece of the mobile payments market, expected to balloon from $172 billion this year to $600 billion by 2016. The new merchant super group plans on offering a mobile-commerce solution capable of seamlessly integrating a wide range of consumer offers, promotions and retail programs. The application will be available through virtually any smart phone.

This move comes about a week after Starbucks announced partnering with Square, a mobile processing start-up that uses smart phone attachments to accept credit cards. Now MCX will not only compete with Square, it has taken away 14 potential partners from the processor. MCX is also bad news for Google, which has been expanding its own mobile wallet platform, called Google Wallet over the past year. Google Wallet uses NFC, or near field communication to transmit payment data from a customers smart phone to an NFC-enabled payment terminal.

Mega-Merchants

With these mega retailers coming together, a new perspective can be used to develop mobile wallet apps. The retailers want to focus on ease of use and security for the consumer.

“As merchants, no one understands our customers’ shopping and payment experience better than we do, and we’re confident that together we can develop a technology solution that makes that experience more engaging, convenient and efficient,” said Mark Williams, president of financial services at Best Buy.

Mike Cook, corporate vice president and assistant treasurer of Wal-Mart said, “the MCX platform will employ secure technology to deliver an efficiency-enhancing mobile solution available to all merchant categories, including retail stores, casual dining, petroleum and e-commerce.”

Now with many more contenders in the mobile commerce arena, the only thing consumers can do is wait for the dust to settle. The great race to mobile wallet supremacy has begun!Host Merchant Services will keep you up to date on all new technology developments and potential partnerships relating to the mobile payments world.

What Brand is Your Wallet? [2023 Update]

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Today The Official Merchant Services Blog keeps examining the rapidly growing payment processing sector of Mobile Payments. With an never ending stream of deals being made by startups and established companies developing the latest gimmicks and technology to bring mobile payments and mobile wallets to the average everyday U.S. consumer driving the marketplace, it’s easy to get lost in a sea of mobile payment processing media hype.

In our blog yesterday we were able to see how some of that disconnect works. Visa pushed mobile payment technology aggressively at the London games. Their plans were almost scuttled by a malfunction with the processing terminals during a men’s soccer match between Great Britain and United Arab Emirates. The crowd was cranky as they were unable to pay for concessions using a mobile phone or a credit card. They had to resort to cash, and many patrons were unprepared for the anachronism.

This wrinkle in Visa’s mobile plans underscores how fragile mobile payment technology still is; and it also highlights how close we’ve come to a cashless society — the kind of society where mobile payments promise to be a thriving and convenient way to pay for goods and services.

The Knock on Mobile Wallets

The continued skepticism U.S. consumers have with mobile payments can be found summarized well in this L.A. Times article by David Lazarus. The main theme is something we’ve covered extensively in the past year: Mobile Payments are the future, but people are worried that the payment processing is not secure. It seems that for almost every story published about how mobile wallets are going to revolutionize e-commerce and make billions and billions of dollars in profit, there’s a story like this one that says consumers are worried about security, fraud and identity theft.

These are valid concerns. Much like regular old online shopping — which has become ingratiated into the average U.S. consumer’s shopping habits — the threat of tech savvy criminals stealing pertinent payment information is an ongoing issue. Everything from phising scams to data breaches affect e-commerce. But none of it has stopped the juggernaut from steam rolling consumer buying habits. Everyone shops online because of the ease and convenience. This is powered by how easy it is for people to be online, click some buttons and buy something. The power of convenience trumps security concerns.

This will happen for mobile wallets as well. Once the technology gets out in front of people they will flock to it because it is easy to use and available where they shop.

Convenience is the Key

So what I believe is the current obstacle holding Mobile Payments back from making a huge splash with U.S. consumers is the fractured marketplace. They’re not readily available at the store when you go there. There’s too many variations on the theme. And too many different companies trying to inject a new technological advance into the sector before it gets traction with consumers. We covered the top types of Mobile Payment technologies recently, and even keeping our analysis to just a few contenders we’re stuck noticing a competition between Near Field Communication driven “Swipe Phone” technology and QR-Code driven “Scan” technology.

iPhone 4S Drives Mobile Commerce

Recent reports by Monetate show it gets even simpler than that — Smartphones themselves. Gone will be the advertising slogan of Captial One, “What’s in your wallet?” that questions what plastic card you use. Instead it will be “What brand is your wallet?” Or rather, which smartphone are you using to pay for things with — iPhone or Android?

According to the data from Monetate, the answer used to be in doubt as late as Q4 2011; and is now a resounding iPhone by Q2 2012. Monetate released its E-Commerce Quarterly Report for the second quarter of 2012, and the figures showed some dramatic changes in smartphone usage driving e-commerce traffic.

According to the report, “Leading e-commerce websites receive 3.31% of their total visits from smartphones running Android, up from 1.76% last year and an increase of 85% in total shopping sessions. These same websites receive 5.41% of their traffic from iPhones compared to 2.45% a year earlier, an increase of 117% in total shopping sessions over the same time period.”

The data showed that in Q4 of 2011 websites received 1.99% of their total visits from Androids and just 2.25% of their visits from iPhones, suggesting the two competing smartphone systems were about dead even. The iPhone 4S was released that quarter however, and iPhones spiked way ahead of the Android.

Despite that spike in iPhone usage, the report indicated that shoppers on Android-powered smartphones converted better than iPhone users — Android converting at a 1.26% clip and iPhone at a 1.00% clip.

What Does This All Mean?

Well even with iPhone getting a bigger spike than Android, both phones grew their e-commerce usage in 2012. That means the goal of realizing those heady revenue predictions from companies like Juniper and Gartner Research are on course. The security concerns may make good copy for the media, but the real obstacle remains saturation in the actual physical marketplace. Give people more opportunities to pay with their phones and they will readily begin to pay with their phone. It will start off as some new gimmick people want to try. And then it will become second nature.

Olympic Payments: Cash Takes Gold

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Today the Official Merchant Services Blog will take a look at the role Mobile Payments played in the 2012 London Olympic Games.

Visa, the official Payment Payment provider of the Olympics pushed for Mobile Payment Technology as a safe and convenient payment option for consumers throughout the London games. Jim McCarthy, Head of Products at Visa Inc., said “This summer we will be demonstrating the future of payments in London – a future where most consumers will rely on mobile devices, tablets and PCs to manage their daily financial lives.”

As a part of Visa’s Olympics marketing push for the future of Mobile, a limited edition Samsung Galaxy S III was provided to some Visa sponsored athletes and trialists. The device featured an Olympic-branded version of Visa’s mobile payment application, Visa payWave which uses Near Field Communication technology, or NFC. To make purchases, consumers simply needed to select the Visa icon on the Samsung device and hold the phone to a contactless payment terminal to pay.

It seemed as though Visa had all the pieces in place to make this Olympics a Mobile Payments success; a dominant payment network, including Visa only ATMs positioned throughout the games, NFC-enabled vendors able to take the mobile payments, and spectators with smart phones who could pay via mobile. The only problem was competing against an Olympic veteran of every games, cash.

During Great Britain’s Men’s Soccer match versus the United Arab Emirates, spectators were unable to pay for food and drinks at Wembley Stadium by credit card or mobile payment after terminals went down.  Many ticket holders described the lines that subsequently built up as ridiculous and said a lack of cash machines at the west London ground added to the problem.

A spokesman for Visa was quick to point the finger at Wembley officials, placing the blame firmly on the stadium’s network infrastructure saying, “We understand that Wembley’s systems failed and therefore they were only accepting cash at the food and beverage kiosks.”

Twitter was bombarded with thousands of angry posts from people who found it completely unacceptable that they couldn’t feed themselves. This was due to the fact that the only available way to pay was with old-fashioned cash and coins, a means of payments Visa wanted to push away from with its mobile payment implementation.

In these games, mobile payments did not expand as much as Visa had anticipated.  Add that to the complete network failure at Wembley Stadium and it would seem that mobile payments were a flop at this year’s Olympic Games.  The silver lining however, is that mobile payments did have a huge presence at the games.  And the uproar caused by the network failure seems to prove that we are moving away from cash as a society.  Just a few years ago, credit card terminals going down at the Olympics might not have been such a big story, let alone a trending topic on Twitter.  It seems for the London Olympic Games, cash took the gold medal yet again in payments, but with the doubling of Mobile users here in the U.S. and the increase globally; cash may soon be unseated by mobile payments.

Industry Terms: Discount Rate

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This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. Well we want to make the payment processing industry’s terms and buzzwords clear. We want to remove any and all confusion merchants might have about how the industry works. Host Merchant Services promises: the company delivers personal service and clarity. So we’re going to take some time to explain how everything works. This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in our resource archive for quick and easy access. Today’s term is Discount Rate.

Discount Rate

The simple definition of the term Discount Rate as it applies to merchant accounts — it is a combination of the fees charged by the card acquirer to the merchant for processing payment card transactions. So what that’s really saying is the Discount Rate is what the payment processor charges the merchant so that they can make profit off of the transaction — it’s not really a discount in any sense of the word when defined like that.

So let’s break this down a little more to understand this buzzword beyond just the obvious. A Merchant Account has a variety of fees. Some of these fees are charged periodically, such as a monthly service fee. Others can be charged on a per-item or percentage basis, such as a Chargeback Fee. Some fees are set by the merchant account provider.

The majority of the per-item and percentage fees, however, are passed through the merchant account provider to the credit card issuing bank according to a schedule of rates called interchange fees, which are set by Visa, Discover, and Mastercard.

Each merchant services provider has real costs in addition to the wholesale interchange fees, and creates profit by adding a mark-up to all the fees they have to take on to provide their services in the first place. The discount rate comprises the combination of dues, fees, assessments, network charges and that additional mark-up merchants are required to pay for accepting credit and debit cards. The largest of these fees by far is the Interchange fee.

There are a number of pricing models that merchant services providers utilize, but Host Merchant Services uses the Interchange Plus pricing plan.

Interchange Plus pricing means that the acquirer charges you a variable MSC consisting of the cost price plus a fixed markup. Interchange Plus Pricing  is exclusively how we quote at Host Merchant Services. Interchange Plus, also known as Cost Plus, pricing gives the customer a fixed rate over published Interchange Fees. This pricing format is normally quoted as a discount rate (percentage fee) along with a per item or authorization fee. The great thing about Interchange Plus pricing is that you always know exactly what you are paying to your processor to services your account. Think of Interchange, and all the associated fees, as an unavoidable cost. No matter who you process with, you have to pay these fees. They may be labeled differently, or wrapped up in a confusing pricing tier, but one way or the other, you are paying Interchange fees. By understanding the markup you pay over Interchange, you know exactly what you pay to your processor and exactly what is going to the card associations. That allows you to make a decision on whether or not the markup seems reasonable for the service you get and choose your processing partner accordingly.

Here’s a small graphic explaining the basics of how Interchange Plus works.

Industry Terms: Payment Gateway

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This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. We want to make the payment processing industry’s terms and buzzwords clear. We will eliminate any and all confusion merchants might have about how the industry works. At Host Merchant Services, we promise to deliver personal service and clarity. So we’re going to take some time to explain how everything works. This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in the resource archive for quick and easy access.

Payment Gateway

Today we will focus on Payment Gateways and how they work, in order to wrap up our week of E-commerce driven content. A payment gateway allows E-commerce merchants to accept credit cards on their websites. Sensitive payment information is encrypted by the gateway to ensure that it passes securely between the customer and the merchant. We have defined a POS, or point of sale system already for the Knowledge Base. A payment gateway can be considered a virtual point of sale system. The gateway acts as a “middle man,” allowing communication between online shopping carts or virtual terminals and the banks processing the transaction.

The process can be broken down like this, it starts when a customer places an order on a website by pressing the “Submit Order” button in an online shopping cart. The payment gateway then forwards the transaction information to the payment processor used by the merchant’s acquiring bank. From there the payment processor forwards that information to the appropriate card association (ex Visa, MasterCard). The credit card issuing bank receives the request, or the Authorization and does the necessary credit or debit check and then sends a response back to the processor in the form of an approval code (ex approved, denied). Next the processor forwards the authorization response back to the payment gateway. After receiving the response, the gateway forwards it on to the website, which then evaluates it as a relevant response and relays the outcome to the merchant and cardholder. Finally, the merchant then fulfills the customers order, then after a batch the acquiring bank receives the funds, and deposits them into the merchants bank account.

Payment gateways can be stand-alone systems designed for integration with other 3rd party systems, or they can be bundled with their own shopping carts and virtual terminals. It’s worth noting that most merchants will not need to install additional software on their own servers to run a basic payment gateway. Some payment gateway providers are simple to implement, but do not offer much customization. Others are more complex but can be customized to your needs.

Host Merchant Services offers a variety of E-commerce solutions to fit your business, including Transaction Central, our own cutting edge in house payment gateway. HMS is able to interface with most of the major Payment Gateways out there, including Authorize.net. We also offer unparalleled protection for all of our merchants in the form of our PCI Compliance Initiative.

 

E-Commerce: Robust and Full of Life

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Today The Official Merchant Services Blog keeps on rolling along with the topic of E-Commerce. We’ve recently been looking at some of the interesting individual aspects of the sector, such as our blog about E-Commerce and Video Games the other day and our blog about Social Media Commerce yesterday. We’ve consistently reported how pervasive and commonplace online shopping has become over the past decade. Gone is the shiny newness of using a mouse to do all of your Christmas shopping. It’s now something mundane that we see most consumers in U.S. households doing when they need either the convenience of going online, or the power they have to find exactly what they want when local brick and mortar venues may not have the service or product desired.

A huge fuss has been made repeatedly over the past two years that Mobile Payment Processing, or M-Payments, are going to reap billions of dollars of profit worldwide and online shopping will shift and embrace shopping anywhere with one’s smartphone.

The King is Dead

This article from Jasper Bell at Econsultancy goes so far as to suggest that E-Commerce is dead and that a new hybrid concept, called Distributed Commerce. Bell calls it a “shift from this direct model, to an indirect, more agile way of selling.”

Bell cites the growth of social media and mobile phone usage. Bell discusses the power of what he calls “peer-influenced content” — essentially word of mouth advertising on social networks, or more simply put, you get turned on to a good or service because your Facebook friends tell you it’s cool or your twitter feed blows up — as a key factor in the paradigm shift.

He also demonstrates that the fluid ability to move from the virtual space on your mobile device to the physical realm of the area you are in and then back into the virtual realm of another device or a channel makes marketing and eventually commerce much more flexible and agile, keeping up with the consumer no matter where they go or how they get there. The International Data Corporation backs up that assertion with its findings that indicated 45% to 60% of smartphone users conducted due diligence on store prices and inventory from their devices. IDC also falls into line with companies like Garnter and Juniper about the healthy future of m-payments, predicting that by 2014 more than $50 billon will be spent on merchandise globally by consumers using their smartphones.

This agility for consumers to shop wherever using their phones as both assistants and payment option is something we have delved into with our look at the variety of Mobile Payments options. And Bell makes a really compelling point that people flip quickly between a product search on their phone’s internet access to a purchase ready state in mere clicks. Distributed Commerce is what Bell calls the evolution of E-Commerce. And it is probably the strongest reason why all of our coverage of mobile payments is still listed under the category flag of E-Commerce. We at The Official Merchant Services Blog already acknowledged this natural connection and kept them together in the larger picture of E-Commerce.

As Bell says in his article, “Commerce today is less about ‘selling in’ a channel but selling ‘through’ a channel, reaching out to consumers wherever they are and selling in that context.”


The Other Shoe

Bell’s compelling evidence for the rise of M-Payments sets his article on a course to then predict a downfall in E-Commerce. We think this is mainly due to his definition of E-Commerce referring primarily to shopping online through a PC or Mac desktop computer — ye old visit to amazon.com from your home computer. We of course lump M-Payments into the overall umbrella of E-Commerce. We also don’t feel the juggernaut that is E-Commerce is so easily deconstructed by the baby steps of M-Payments just yet.

Twenty Five Percenters

Juggernaut is too timid a term to describe E-Commerce. This infographic from Big Commerce asks the question “Will M-Commerce Overtake E-Commerce?” If you skip right down to the bottom of the graphic, the sub section titled “Brace Yourself” you find this stunning and overpowering fact: E-Commerce is expected to generate $1 trillion in revenue by 2014. The graphic also states that 54% of all retail purchases will be made online by 2014. Comparatively, M-Commerce is predicted to hit $119 billion worldwide by 2015. Mobile Payments are not going to be the death of E-Commerce just yet.

And this article by Media Post News says pretty much just that — estimating that even by 2017 m-commerce will match about 24.4% of the overall e-commerce pie. All of these projections point to staggering growth for mobile payments, but moving right along with that is the firmly established e-commerce sector that will continue to take more and more of the standard retail pie as it nom-nom-noms its way to massive revenue generation.

Big Time Processing Opportunities

What this means in terms of the payment processing industry and all the companies like Host Merchant Services that facilitate credit card transactions for merchants is simple: Our economy is going cashless. We are driving full steam ahead into a realm where we buy things with phones that will function like credit cards, or we just hop on a device/tablet/computer and click-touch-click our way to purchases. This means more and more of the purchases people make will carry the processing fees that credit card processors make their margin of profit from. As the economy becomes completely tied in to credit transactions through E-Commerce, payment processing becomes a standard. It’s something Merchants need to know about and that’s why The Official Merchant Services Blog exists.

Industry Terms: CVV

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This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort.  We want to make the payment processing industry’s terms and buzzwords clear.  We will eliminate any and all confusion merchants might have about how the industry works.  At Host Merchant Services, we promise to deliver personal service and clarity.  So we’re going to take some time to explain how everything works.  This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in the resource archive for quick and easy access.

Card Verification Value (CVV)

In continuing with our E-Commerce focused blogs this week, I thought it would be appropriate to introduce the term Card Verification Value, or CVV. There are two types of CVV codes, called CVV1 and 2, respectively. The CVV1 is embedded in the magnetic stripe of track 2 of a card. The purpose of the first CVV is to verify data stored on a card is valid and was issued by a bank when used in person.

The second and more prominent CVV2 is a three-digit code (Visa, MasterCard) printed on the back of credit and debit cards.  American Express cards have a ‘Unique card code’ that is four-digits long and printed on the front. Discover has a 3-digit code on the back of its cards, but refers to this as a CID (Card Identification Number). These codes are used in card not present transactions occurring over the Internet, or MOTO as an added security feature to prevent fraudulent purchases. The code is meant to verify that the customer has the card in their possession.

Security Benefits

For Merchants:

Merchants requiring CVV2 codes for their card not present transactions can dramatically reduce fraud in their businesses. Using this extra layer of protection can stop breached or fraudulent cards from going through. Avoiding potential retrievals and chargeback fees.

For Consumers:

Entering your CVV2 code when purchasing online products verifies that you are who you say you are. Under Visa regulations, merchants cannot store CVV2 codes in their databases.  This means any card numbers lost in a breach would be less useful. In this sense, a consumer is protected on both sides of a transaction, once when verifying the purchase, and then again in terms of breach or fraud security.

Social Media Commerce: Tweet, Like, Buy

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Today’s installment of the Official Merchant Services Blog is on the rise of E-commerce in social media. Last week, we covered the E-commerce offerings of the video game industry in detail. Today, I’d like to take a look at the role E-commerce is beginning to play in the realm of Facebook, Twitter and other social media websites.

Social Media User Base

Social media sites have expanded rapidly over the last few years.  For those who don’t remember, Facebook started out as a place strictly for college level students to network. Now all-inclusive, Facebook is the world’s most populated social gaming and media platform with 955 million users worldwide.

Twitter is second with over 500 million users worldwide, LinkedIn is third with just about 175 million, and Google + trails all three with about 90 million. With such a massive user base to reach out to, an E-commerce presence is the next logical step, and as usual, Facebook is taking the lead. This article will focus on what Facebook has done to streamline the E-commerce aspect of social media.

“Like” Pages

It’s safe to say most Facebook users are familiar with the “Like” button and similarly, the “Like” pages. These pages describe the interests and activities of the user, offer updates to certain products and promotions, as well as allow users to share their thoughts on those products.

The end goal of any merchants Facebook “Like” page is the get the most number of “Likes” and subsequently the most number of page views and purchases of your particular product. The problem lies with differentiating potential customers from current ones. If someone “likes” a page for a product, they may already own it, be saving their money for that product, or just think its neat but don’t want or need it. As of right now, Facebook has no way to separate these users.

Social E-Commerce

According to Facebook’s SEC Form Q-10, 1.6% of users spent over $1 billion on Virtual goods (accessories for virtual characters, tools in Farmville, etc) in the first six months of 2012. That is money spent on items never seen outside of the browser. If the market for non-tangible goods can be that lucrative, the market for actual goods Facebook users enjoy must be bigger.

Carol Rozwell, Vice President at the tech research firm Gartner had a call to action for merchants unsure of the potential for social media e-commerce.  “It’s crucial that organizations implement approaches to handling social media now. The effort involved in addressing social media commentary is not good cause to ignore relevant comments or solvable issues.” According to Gartner, although more than 50% of organizations track social media only 23% actually collect and analyze data.

In June, Facebook made a move to simplify mobile e-commerce payments by decreasing the number of steps involved in checking out, from seven individual steps to two, and eliminating the need to type. The Facebook mobile app SkyBucks, is another innovation in E-commerce, it allows you to charge your virtual accessories to your phone bill directly.

More recently, the social media giant rolled out an offer for stores using Shopify.  Since partnering, Facebook is now offering free $50 Facebook Ad credits. This is in addition to the credits from Google AdWords and Amazon Products that Shopify merchants already enjoy. The promotion is another step for Facebook in the E-commerce direction.

The “Want” Button

Above I identified a need Facebook had, the ability to discriminate between current and potential customers for their advertisers and business users. In early July, the Ecommerce Times had a story on Facebooks next big thing: The “want” button.

The button will allow users to create ‘wish list’ of products that they like or want, but do not currently have. Merchants will want to focus on who has marked their product as ‘wanted’ and who has not. The benefits of the “want” button go beyond sales. The button would allow for highly targeted marketing as well as a sharing of ‘wish lists’ between users. Ultimately the goal should be for the wish list to take its place among the social media landscape, along side a user’s general info and status updates.

For the Consumer

To the average consumer and Facebook user, this should add to the ease of purchases that has increased recently. With the additional “want” info that the site will collect, you will be able to see what your friends and family want, add similar items to your personal wish list, and research potential gifts for you friends discretely. All of which add value to Facebook’s ever-increasing platform.

For the Merchant

For merchants looking to expand on Facebook, the E-commerce addition will do wonders. The added marketing affects will help businesses increase name recognition and sales, while still connecting with the end user. It seems to me, that Facebooks E-commerce push will benefit all involved.

Industry Terms: Debit Cards

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This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. Well we want to make the payment processing industry’s terms and buzzwords clear. We want to remove any and all confusion merchants might have about how the industry works. Host Merchant Services promises: the company delivers personal service and clarity. So we’re going to take some time to explain how everything works. This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in our resource archive for quick and easy access. Today’s term is Debit Cards.

Debit Cards

A debit card (also known as a bank card or check card) A debit card looks like a credit card but works like an electronic check. The thin plastic card that provides the cardholder electronic access to a bank account at a financial institution. Payments made with Debit Cards are deducted directly from that checking or savings account. If a cardholder uses a debit card at a retail store for example, the cardholder or the cashier can run the debit card card through a scanner — oftentimes the very same terminal credit card purchases are swiped through. This action enables the financial institution to verify electronically that the funds are available and approve the transaction. Most debit cards also can be used to withdraw cash at Automated Teller Machines (ATMs).

Unlike credit and charge cards, payments using a debit card are immediately transferred from the cardholder’s designated bank account. This difference is key in one sense, as it creates a completely different set of protocols and standards for debit transactions in the payment processing industry. This can be seen most recently in the Durbin Amendment of the Dodd-Frank Act. The financial reform legislation set a hard cap on debit card swipe fees. But has absolutely no affect on credit card transactions.

For many consumers, the card they carry can be used as both a credit and a debit card when presenting it at a retail store for purchase or using it online. Oftentimes, a consumer is asked to choose between credit or debit.

For the consumer the distinction can have this impact:

  • The card’s individual rewards program can vary depending on debit or credit. In many cases, a credit transaction reaps greater points  or rewards from these types of programs.
  • A debit transaction can allow for cash back right at the point of sale.
  • A credit card transaction can have stronger protection. It takes time before it is “batched” out by the merchant. And the credit cards themselves have more fraud protection layers than debit cards typically have.

For the merchant and for the banks involved the impact is this:

  • The transaction network that the purchase is run through is separate for debit and credit.
  • The fees associated with the transaction are different. After Durbin, the fees face a hard cap ceiling on what the merchant can be charged. Credit has no such ceiling and so smaller transactions — say purchases under $10 — can end up costing a merchant a bit more in fees.

The distinction between credit and debit was stronger in the 1980s and 1990s, but it still exists. It’s worth knowing what your options are as both a consumer and a merchant.

E-Commerce and Video Games

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Today I’d like to take a moment to venture somewhat further afield than I usually do — and then bring it all back home to settle into some insight about E-Commerce. Primarily what I want to look at is the evolution of video games in the past couple of years and how things seem to be gravitating so much more toward E-Commerce friendly offerings while leaving Brick and Mortar video game retailers scrambling to keep up.

Just the other day, EA Games (Electronic Arts) released its financial results for the first quarter of this year and among the most eyebrow-raising statistics to come out of the figures was the breakdown of EA’s profits by platform. Of the three platforms for EA, PC delivered $276 million, the Xbox 360 $292 million and the PS3 $267 million. That means PC games eclipsed the Playstation 3 platform and made a strong bid to catch up to XBox 360 earnings.

PC’s strong showing can be tracked to increased revenues from digital sales. Which says a lot about how video games are changing in their format, evolving to suit consumer needs, and fully embracing the power of E-Commerce. This isn’t exactly a new trend, but it’s solid evidence of the paradigm shift that’s taken place. Video games are ingratiated into our culture these days. The FX Channel exists, and is extremely gamer-centric. People play things like Farmville online and let everyone they can know about their successes in their virtual farmland. Games like Halo and Call of Duty drive console game sales higher and higher. And PC games ranging from World of Warcraft to Minecraft take up large chunks of peoples’ time.

I’ve grown up with video games and am one of the first generations to pretty much be around them for my entire life. So developments like EA’s earnings statement tweak my interest.

Atari’s Raiders of the Lost Ark game that was roundly criticized for how unplayable it was (Spoiler Alert: You had to navigate yourself while using a parachute to break the chute on a branch at the proper angle of descent so you’d slide into the cave under the branch, then dig a hole with the shovel that most people never knew you needed. Yeah, I beat it with luck!) Then we get into Nintendo, Sega, and things ramp up quickly to the current PS3 vs. XBox wars that EA has situated itself comfortably between by making many of its titles accessible on both platforms.

This entire time, the video game market was dominated by a brick and mortar outlet. The arcade of my childhood was a place you went to. The EB Games store I bought Madden Football from was a store I had to visit. I started using pocket change to pay for games and ended up swiping a credit card through a machine, but it was always at a location.

Then came my experience with Massively Multiplayer Online Role Playing Games, and a huge introduction to gaming through E-Commerce. I started out buying a game like Everquest or World of Warcraft from a box at a store. But it had a subscription cost attached to it to keep playing it. And the model was to continue playing it month after month after month after month. The subscription cost was a recurring payment, made through the game’s website. It was e-commerce. And it was just the first step.

Eventually the games stopped shipping boxes. You could buy the expansion directly from the gaming company. It would download directly to your machine. And your game would update. Then companies like Steam got involved. You could now buy games directly from their site and download them. No more going to a store to buy a game. Unless you still played console games. Though all of the most successful Brick and Mortar game shops were also offering their games through their online shopping center.

And the console platforms jumped in big-time, with downloadable content. XBox 360 demonstrates how readily acceptable this evolution has become, and this is why XBox 360 still outpaced PC games in EA’s earnings report. You subscribe to XBox’s “live” service, and you get access to apps and content. You can download new games, updates to games, as well as movies and television shows, all through your XBox.

My own personal example, last winter I ordered NBA2K12 through Gamestop’s online shopping center. Got the game, and downloaded roster updates through XBox live immediately. Then went and watched a movie on Netflix through my XBox. It’s all digital content available directly from your interface. This is growing in leaps and bounds with all gaming companies. PC Gaming’s healthy revenues for EA are because of digital content that is available.

What this means is that video games are now becoming something people purchase online, and download directly to their gaming system. It’s a 100% E-Commerce transaction. For credit card processors that means that cash is no longer involved in the competition for video gamers’ money. It’s quickly becoming all plastic all the time.

Another wrinkle added into this which impacts E-Commerce is the shift away from the subscription based model for those MMORPGs I mentioned above. This is also something revealed in the EA earnings report. Last year EA launched its MMORPG Star Wars: The Old Republic. It won a lot of gaming industry awards, and quickly announced it had over 1 million subscribers. It’s goal was to compete with World of Warcraft, Blizzard Entertainment’s MMORPG giant which had dominated that sector of gaming for years. Unfortunately, the subscription model is a dinosaur and not even the power of the Jedi Knights and their Midichlorian fueled lightsaber gimmicks could change this shift.

Freemium Models had been the new thing in MMORPGs. These were touted as “free to play” games. You purchase the game (though this cost tends to not be all that high since you can get a lot of these games very cheap on Steam for instance), and then you play it without a subscription fee. You then pay for things you want in the game — a common example is bag space to store all of the items and junk you pick up while playing — through micropayments. The game’s free for the basics, but you pay for premium additions. So say you want another bag to store more orc fangs in? You pay a couple of bucks and you get that bag. You want to play the new expansion with the new quest zone? You pay a few more bucks and that expansion is yours. You want a horse to go from place to place faster? You pay a few more bucks. Your game is free, but the stuff you want in the game or the new additions to your game, they all cost money.

This is the model that EA’s Star Wars: The Old Republic announced it was changing to with its earnings report. This effectively killed the only real subscription based MMO left besides World of Warcraft. And it’s not that surprising. The Freemium model makes money and keeps the games going strong. And it keeps getting adapted to the point that its being used in the Console Platform system as well. You can buy added content to many of the most popular XBox games being played right now. You have your XBox Live account, you pay some extra bucks for a new part of the Half-Life story or more stuff to do in Skyrim.

It’s where Video Games are headed. The arcade is dead. The stores selling boxes of games are almost dead. It’s all online and it’s all 100% completely tied in to e-commerce and credit card processing.

To answer an old goldfarmer’s joke from the comic strip VG Cats: “How I mine for fish?”

With a credit card and a microtransaction.