Hoping to tap an emerging market, Visa Inc., MasterCard Worldwide and American Express Co. have been working to open their networks to third-party developers of software and smartphone applications.
They plan to attract independent programmers who can create software to increase the payment networks’ transaction volume, much as programmers increased the appeal–and revenue–of such smartphone platforms as Apple Inc.’s iPhone and Google Inc.’s Android. Outside developers also potentially could make these long-established payment networks a better fit for the Web, where newer, alternative payment systems already have grabbed a significant share.
“The old guard is just trying to catch up with the new guys, and it might be too late,” says Avivah Litan, vice president and distinguished analyst at Gartner Inc., a Stamford, Conn.-based market research company. “This is all about the battle for the future. This is just a sign of how threatened they are.”
Each company is, however, playing catch-up with the front-runner: PayPal Inc. The San Jose, Calif.-based unit of eBay Inc. has enjoyed a head start on the payments networks, having launched its own open-development platform in 2009.
The PayPal platform allows online banking vendors to offer PayPal payments within their own systems. Fidelity National Information Services Inc. has linked PayPal to its bill-pay system, and S1 Corp. incorporated PayPal funds transfers into its mobile-banking software.
“It’s like old news with the new payments. It’s a big contrast between the old, established players and the new players; the new players are just that much more agile,” says Litan.
PayPal has predicted that $1 billion would pass through its platform by the end of 2010. As for the competition, Naveed Anwar, senior director of PayPal’s developer network, says PayPal welcomes other players to the market.
“I don’t worry about them,” he says of MasterCard and its soon-to-be released open development network. “It’s actually good.”
Whatever its rivals offer, PayPal still can claim credit for having “helped define how payments happen on the Internet,” Anwar says.
Visa has tried to leap ahead in mobile payments with its July 2010 acquisition of CyberSource Corp., which brought with it a ready-made platform, Authorize.Net, that has been supporting e-commerce for a decade. In October 2010, Visa announced it had poured an undisclosed amount of resources into the company to revamp its tools for developers.
And Authorize.Net soon will make more of its parent’s payment-network features, such as the online shopping portal Rightcliq, available on its Authorize.Net platform.
Rightcliq acts as a separate window where consumers can drag items from different e-commerce sites for purchase later. It functions as an aggregated checkout page for multiple online merchants.
AmEx owns the online card processor Revolution Money, though analysts say it has not yet tapped the full potential of that purchase.
MasterCard followed suit with its purchase of DataCash Group PLC in October 2010, which observers say was the card brand’s own effort to catch up to rivals.
MasterCard and AmEx did not make executives available for interviews.
With each of these purchases, the networks have found themselves surrounded by obstacles, says Brian Riley, research director for bankcards at TowerGroup. One challenge for the established networks has been balancing their intense focus on security with the need to open up their platforms, he says.
“Opening up some of your [network] is really a paradigm shift,” Riley says. “It is not as natural as it would be with a new company.”
Moreover, “you do need to be very sensitive about who is creating what is out there because you are allowing them to use the logo, and it doesn’t have the [same] testing” as an internally developed product, he adds.
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