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Can a new entrant be a threat to the big card schemes?

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Stumbling on news that a new payment network Satispay[1] from Italy gaining significant FINTECH investment.  Looking at other payment schemes I wondered what made this so attractive to invest 27m Euros?

The Satispay mobile payment model is where customers set a weekly budget for spending at merchants that tops up automatically from their bank account, currently weekly.  Merchants pay a fixed fee for purchases above 20 Euro of 20 cents and fee free for transactions below 20 Euros.

The article states the primary driver has been the success in Satispay of signing up merchants to accept the mobile payment service across the whole of Italy. I believe there may be three other reasons. 

Firstly, the disruption that PSD2 and SEPA regulations creates in European banks.  For Satispay the current customer loading process appears far from perfect, there is a two day delay in receiving funds into their Satispay account in Italy.  Regulatory changes may in the foreseeable future help to reduce any delay in crediting Satispay customer and merchant accounts.

Secondly, is the international card scheme merchant fees for transactions being a fixed fee to a smaller fixed fee and a % of the transaction amount.  Satispay offers merchants a fixed fee for transactions above a fixed amount (20 Euro) and ‘free’ transaction for low value payments.  If Satispay can service small value transactions between 10 Cents and 1 Euro profitably then this would be disruptive to the established payment schemes. 

Thirdly, the specific consumer payment market in Italy that may make Satispay successful.  In the Italian market consumers have widely adopted pre-paid cards[2] in larger numbers than other EU markets. 

Others mobile payment schemes are successful where they are merchant owned ‘Closed’ loop payment model such as Starbucks.  The primary drivers to their continued success is often stated as providing unique services[3] such as ‘order ahead’ or loyalty offers to the consumer as well as being more convenient than cash.

There will be many other challenges for Satispay to overcome in establishing a new national payment brand and they may ultimately not succeed.   What Satispay does show is that new organisations are trying to disrupt the four party payment scheme business model at its core.  

After over 30 years domination of the four party model only a really disruptive solution or event is likely impact this.  The Satispay model does facilitate buyers and senders transferring funds more directly and at a lower cost to merchants but if this will be enough to threaten the existing card schemes in either a national market or across a significant merchant segment internationally we must wait and see.

 

[1] https://www.finextra.com/pressarticle/70612/italian-m-payments-startup-satispay-raises-eur183-million

[2] https://www.be-tse.it/italian-prepaid-card-market-any-room-for-growth/

[3] http://uk.businessinsider.com/starbucks-loyalty-program-now-holds-more-money-than-some-banks-2016-6

  

 

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