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Beyond interchange: From plastic to payment platforms?
The emergence of mobile payments has delivered unprecedented levels of convenience for consumers. In parallel, digital platforms have begun to launch dedicated payment platforms and payment apps. These new platforms share two characteristics: (1) ‘reverse value creation’ and (2) services that are ‘free’ for consumers, but which cost merchants to accept. This development has changed the business paradigm for payment models: as payment has become commoditised, merchants must offer the full spectrum of payment options demanded by consumers. In the light of this new economic reality, the interchange fee model is increasingly looking like a hangover from the last century. New business models are needed for the payment industry to stay competitive, but also to leverage Europe’s advanced payment infrastructure in the digital age. This comment piece provides a personal opinion about the future of payment business models informed by two developments: the shift from plastic (ie cards) to mobile devices as the dominant mode of payment, and the shift from schemes with interoperable participants to centralised platforms based on new digital models of value creation.
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Udo Milkau is Head of Strategy and Market Development for the business line transaction banking at DZ BANK. He received his PhD at Goethe University, Frankfurt, and worked as a research scientist at major European research centres, including CERN, CEA de Saclay, and GSI. He is also a part-time lecturer at Goethe University Frankfurt, where he delivers courses in transaction banking, and is a member of the Payments Services Working Group of the European Association of Co-operative Banks (EACB) in Brussels and of the Operation Managers Contract Group of the European Central Bank (ECB).