Navigating the Challenges of Launching a Card Processing Network: Strategies for Competition with Visa, Mastercard, and Amex

Launching a card processing network capable of competing with giants like Visa, Mastercard, and American Express (Amex) is undoubtedly a daunting task. However, understanding the challenges and implementing strategic approaches can pave the way toward a successful launch. This article delves into the complexities involved and outlines key strategies to overcome these obstacles.

The High Barriers to Entry

Entering the card processing market is fraught with significant challenges, the foremost being the need for comprehensive licensing. Additionally, global operations necessitate substantial investments in infrastructure. Even with thriving e-commerce, the vast majority of transactions still occur at point-of-sale (POS) terminals. Thus, a robust merchant base is essential for any payment scheme to succeed. This underscores the importance of addressing the "chicken and egg" problem—the difficulty in acquiring cardholders if merchants do not accept the card and vice versa.

Strategic Approaches to Growing Your Network

Online Growth First

One fruitful strategy is to start with an online payment network and then transition to brick-and-mortar acceptance. This method was successfully employed by PayPal, which uses its merchant and customer base as leverage to expand into retail outlets. The key here is to build a critical mass of both cardholders and merchants before moving to brick-and-mortar acceptance.

Negotiating with Payment Processing Companies

A compelling alternative is to negotiate with existing payment processing companies, like Discover did with First Data. By default, many processors already offer multiple networks, including Visa, Mastercard, and Discover. Offering a very attractive value proposition to these companies could result in you being included in their offerings, providing rapid and widespread merchant acceptance.

Acquisition and Creating Alliances

While consolidation in the U.S. market makes it challenging to acquire U.S. networks, there are opportunities for international expansion. Acquiring or creating alliances with other networks can enhance your global reach. For instance, Discover's acquisition of Diners Club International, allowing Discover to gain international acceptance, demonstrates a viable strategy.

Pseudo Network

Another innovative approach is leveraging a pseudo network model, where you can collaborate with existing networks like Discover. If you build a substantial user base for online transactions, you can negotiate with Discover to launch your own branded cards or even use their network. This model can be particularly attractive if you aim to expand into brick-and-mortar payment processing.

Conclusion

While the challenges of launching a card processing network are significant, there are strategic pathways to success. By leveraging online growth, securing partnerships, acquiring networks, or adopting a pseudo network model, you can create a competitive edge in the market. However, it's crucial to have a powerful value proposition to attract cardholders, merchants, and card issuers. Innovative resource allocation and proactive strategies can make it possible to carve out a niche in this highly competitive landscape.