The Problem With Payments ⇥ stratechery.com

Fantastic, infinitely-quotable post from Ben Thompson. This bit is particularly insightful:

This is the blessing and curse of building on credit cards: you get instant ubiquity, but massive competition. The end result means Square is unprofitable, and getting the scale to make these numbers work – or, as Square tried to do, the user experience that makes paying these fees worthwhile – is a challenge that would be faced by anyone looking to build a payment system on top of credit cards, including Apple, Amazon, or Google.

The alternative is to go around credit cards and build something completely new. This leaves much more room for a sustainable margin, but then you’re left with the absolutely massive network problem. If you think getting a social network off the ground is hard, when the only obstacle is getting people to enter in an email address and password, imagine having to simultaneously distribute a means of accepting payments to merchants and a means of making payment to consumers, all at the same time, because if you only have one you basically have nothing.

This is why I, for the foreseeable future, expect to see little if any progress in the United States.

Of course, this doesn’t mean that these companies couldn’t build a payment system on top of credit cards. It simply means that…

…[T]he reason that contact-less payment systems have taken off in sectors beyond transportation is that their relevant competitor was the obviously inferior cash, not the slightly less-good credit card. The gain was worth the pain of creating a new two-sided network of merchants and consumers.

While Canada isn’t as advanced as Hong Kong or Japan in terms of alternative payment methods, contact-less payment was given a real boost a couple of years ago when Tim Hortons added it as a payment option for their stores. They had resisted any sort of card-based payment in the past because of how slow it typically is, but contact-less payments are even faster than cash.

This is a great article. You should make time to read it.