AMSTERDAM, February 14, 2011 /PRNewswire/ -- The Durbin Amendment in the US is putting the card payments business model under significant pressure. With major revenue loss, especially on higher value card transactions, it will be even more difficult for the banks to provide attractive merchant fees for the huge number of low value payments - everyday small purchases below $20, typically made in cash.
Processing costs for low value payments are prohibitive - Durbin could make this worse The primary weakness of the current business model in processing low value payments stems from the processing costs, which are independent of the transaction amount, and incurred by the banks for each individual transaction. These costs result in a transactional charge associated with every payment that is prohibitively high for smaller transaction amounts, making it unacceptable to the merchants. Maximum fees under the new legislation are likely to become de facto fees for all transactions, making low value payments even more expensive than today, and having negative impact on merchant acceptance. The consumers may also be negatively impacted as indicated by Mr. Dimon, the CEO of JPMorgan Chase during the earnings call on January 14, 2011. Due to the significant revenue loss the banks may increase charges for debit cards. Another adverse consequence would be making 5% of current bank clients unbanked because the banks will not be able to profitably serve them.
This creates a negative spiral with revenue loss driving reduced bank investment in payment systems, thereby stifling innovation, unattractive merchant and consumer fees reversing the current cash replacement trend, and a larger part of the population being forced out of the financial system. This negative spiral can be averted only by removing a significant portion of the processing costs from the payment system, making low value payments economically viable for all stakeholders. The existing model has reached the limit where economies of scale and tweaks to the existing processes cannot deliver the required results.
Cardis' aggregation solution makes low value payments economically viable Cardis' innovative aggregation solution for low value payments reduces the processing costs of the existing payment system by approximately 10 times and enables a new business model which the industry needs to address the above critical challenges. It supports all form factors including EMV cards, contactless cards, mobile NFC phones, and uniquely supports both physical retail and m/e-commerce payments.
"This fundamental rethink of the existing model is a great example of effective innovation in the payments sector", said Nebo Djurdjevic, the CEO of Cardis. "Like all good innovations the Cardis solution builds on the current infrastructure and delivers significant improvement to the performance of current payment products, allowing them to service very low value payment transactions at a cost proportional to their value. It can provide a stimulus for new growth, new channels, new merchants, and complement advanced technologies including EMV, contactless, and mobile NFC."
Cardis is moving forward globally in a post Durbin environment
"The US is not an exception", continued Djurdjevic. "Regulatory intervention impacting electronic payments profitability is a global phenomenon, while, paradoxically, at the same time nearly all governments are keen to see the demise of cash and paper transactions which still dominate Low Value Payments. Cardis is the catalyst to make low value payments economically viable in a post Durbin environment. In 2010 significant interest in the Cardis solution was shown amongst banks, telcos and others in Europe and North America, and there are already plans for at least one pilot starting in 2011."
Cardis provides a unique solution for low value payments with transaction economics an order of magnitude better than the existing payment products. The Cardis solution supports multiple implementation and business models that provide true economic advantage to banks, payment schemes, payment processors and mobile operators in the different eco-systems. It is a proven, ready-to-market solution that can capture the cash replacement opportunity for low value payments in POS, e-commerce and mobile environments. Cardis Enterprises International BV is based in the Netherlands.
For more information, please visit http://www.cardis-international.com
SOURCE Cardis International