My most rewarding work experiences have centered on collaboration among banks and among merchants. These experiences have been associated with payments, an area where banks and merchants have worked together to build platforms and services for their common good as well as to serve consumers by improving the efficiency and convenience of payments.
Today’s most successful payment systems are based on huge scale because of successful collaboration. Credit cards, shared ATM networks and debit cards are among the most prominent payment services in today’s economy. Their ubiquity is based on the nearly universal participation of every commercial bank and every regional and national merchant in the US. The development of universally accepted credit and debit cards required the cooperation and acceptance of merchants. Today, we take these payment services for granted and look forward to even greater convenience in our shopping and buying experiences.
Agentic AI is rapidly emerging as both an opportunity and a threat to incumbent providers of banking and payment services as well as to traditional sellers of goods and services. Offerring the lowest prices for commoditized products will enable AI agents to steer customers to the lowest priced merchant. Similarly, web-based merchants may steer their customers to the lowest cost payment options. Individual banks that tax providers of Pay-By-Bank services or whose cards typically bear premium interchange rates might find themselves singled out by AI agents as merchants incorporate bank pricing into every payment option.
It’s likely that the pace of the next payment revolution will result in either a windfall or a death knell to many of today’s companies. Collaboration may well be the key to survival, but collaboration should not be limited to formats that exclude Fintech companies and disrupters of traditional card payments. Why would merchants want to perpetuate the credit card systems in which they typically get rules forced upon them as well as supra-competitive pricing?
While banks can rely on the many institutions they have created over the years to lead them or assist them in navigating the path to future payments, merchants are not similarly equipped. Unlike banks, merchants have no intermediate networks to advocate and bargain for their share of the benefits associated with emerging payments. While merchants have created member associations to lead political efforts in which they are continuously engaged with the bank networks, they lack entities with the operational and business infrastructure to effectively negotiate fair agreements with the banks. As a result, merchants find themselves as unequal players, typically forced to accept the one-sided rules and prices foisted upon them by the banks’ networks and to struggle alone.
Merchants must band together to either create a new entity or to empower an existing one to negotiate on their behalf. It is especially important that small and mid-sized merchants join in this effort either directly or through their state or national trade associations. It should be made clear to the banks and their networks that everything including the price of acceptance as well as the rules are on the table. As opening stakes, one-sided rules like honor-all-cards and default pricing should be tossed out the window. Anything short would lock in the sins of the past and prove a disservice to the merchant community. The time has come to organize. Failure to do so will likely doom merchants to playing the same reactionary role that has cost them dearly with card payments.
By: Mark Horwedel