Reuben Jackson


Merchant Payment Processing and the Future of Money

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Merchant payments using barter, cash, and credit are nothing new. For thousands of years, customers and merchant exchanged goods and services using physical money, tradable goods, and written IOUs. Only in the 20th century did customers gain the ability to “charge it to the card.” Department stores were the first to offer in-store credit cards (charge plates, charge cards, etc.) in the early 1900s. By 1950, the first general use credit card appeared in the form of Diners’ Club cards. As debit cards arrived later that century and a massive expansion in consumer payment cards took hold, merchants had to keep up with changes in payment preferences and technology. The era of the payment card was born.

Businesses must share a piece of their profits with their merchant processing providers to ensure rapid payment settlement and a convenient shopping experience for customers. Many merchants pay a flat rate and a percentage of the transaction amount, as well as a host of other fees like monthly dues, subscriptions, machine rentals, network access fees, and much more. It all adds up quickly, and the cost of merchant payment processing especially hurts small businesses without a high volume of transactions or monthly payment flows.

Today, many merchants accept over 20 different types of payment cards and e-payment options. The system of merchant processing is big business around the world. Visa, MasterCard, and many other large credit card companies dominate the global market for credit payments. The processing of credit and debit payments often relies on big financial institutions and a few dominant players in the market. For merchants, there is little choice and big fees to pay. It can be especially frustrating to wait for remittances to come back and deal with the confusing contract language. Blockchain and cryptocurrency may provide the solution to large and small businesses to accept customer payments without a need for expensive middlemen to broker the deal.

Innovations in the market disrupted the establishment status quo for payment processors. Companies like Square, Venmo, and others changed the expectations and pricing models for businesses. As mobile and web technology becomes ubiquitous, businesses will have many new choices and greater flexibility when it comes to accepting customer payments. A few exciting companies in the blockchain space could offer new hope to merchants fed up with the high cost of payment processing and slow, unresponsive service from their merchant services contractor. Firms like Mycelium, Jelurida, and SpectroCoin may change the way we all do business at the cash register.

Mycelium bills itself as the “next-gen payment system” using a distributed ledger and a payment card ecosystem to help customers and businesses better connect. Using a mobile wallet app and a merchant payment system based on the blockchain technology behind bitcoin, Mycelium hopes to redefine the relationships between banks, merchants, and customers. A decentralized ledger and a coin-based payment architecture, Mycelium offers a lot of benefits and savings to both businesses and their customers.

Another blockchain-based payment disruptor is Jelurida, the creator of the Nxt and Ardor platforms. Both Nxt and Ardor are blockchain-based — Nxt is an open-source blockchain platform for general use, and Ardor is more specifically targeted to the business and NGO community. Both use cryptocurrency to facilitate payments over a decentralized network. Jelurida hopes that businesses will adopt its blockchain technology to create new “child chains” off of the Main Ardor Chain. Child chains allow businesses to customize and control their own blockchains without the need for massive processing power to create coins or build a network from scratch. There are other invoice generator services that are looking to disrupt the old way of doing things.

SpectroCoin is another blockchain startup hoping to take on the world of merchant payments. From humble beginnings as an online cryptocurrency exchange, SpectroCoin blossomed into a full-service blockchain business. The firm now offers an online wallet, a payment card, and merchant payment services. Using bitcoin as its primary technology, SpectroCoin can help businesses receive payments from their customers using a simple QR code at the cash register or a clickable checkout button online. It seems very straightforward to integrate a business into the SpectroCoin payment ecosystem.

One of the more frustrating parts for merchants in their payment processing agreement is the section regarding chargebacks and refunds. Credit card processors wield enormous power over merchants when it comes to disputes, refunds, and chargebacks. A “chargeback” is a disputed transaction initiated by the consumer. The process exists to protect customers against unauthorized transactions, but it often creates headaches for business owners. New technology such as the blockchain will give merchants more power over the chargeback process, but consumers may lose some leverage without the credit card company or the bank in their corner. Many chargebacks happen for legitimate reasons, so it’s up to the new class of payment processors to figure out a solution that works for businesses and consumers alike.

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