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Barking Transactions

By Mercator Advisory Group
March 7, 2011
in Analysts Coverage
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Thinking out loud seems to be a primary strategy in the war of words between issuers and merchants these days. The most recent examples of this are some statements issuers are making with regards to unbundling debit card transctions. What this strategy entails is essentially separating the authorization and settlement components of these transactions if the consumer’s account doesn’t hold the funds to pay for their purchase. In that case, the issuer would return the transaction unpaid to the merchant, unless that merchant agreed to pay extra to process the transaction with guaranteed settlment.

To make back some of that money, banks are weighing whether to divide debit-card services into components and charging for them separately-known as “unbundling.” For example, if merchants want a guarantee of payment, as approved debit transactions currently offer, that would cost extra.

In what we would expect to be a widely quoted response, one merchant organization stated the follows:

Unbundling “doesn’t make a lot of sense,” says general counsel for National Retail Federation, an industry trade group. “It seems a bit strange to take out something that’s intrinsic to a [debit] transaction. It’s like trying to separate a bark from the dog and selling the bark separately.”

We’re also not sure how this would work for PIN transactions either, where the authorization and settlement are contained in one message. Do financial transactions bark or will they bite?

Click here to read more.

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