Electronic Payments - Learning From History

Berlin, 2000.
In Germany the Sparkasse Bank group invested heavily in a new payment scheme called the Geldkarte. The Money Card. This was an early smart chip card. The chip had enough memory to store money data. The user could go to a Sparkasse ATM and download electronic cash from their bank account to the Geldkarte. Then, theoretically, they could go to any merchant in Germany and pay for their purchases with their card, just like cash.

Sparkasse Bank assumed that merchants would readily upgrade their point of sale terminals to add the Geldkarte reader and software. They were wrong.

Merchants were not excited about spending 200 DM for new readers. "Why should we?" They asked. "What is in it for us?"

So merchants did not upgrade their terminals. End users had no place they could use their Geldkartes except a few large merchants where Sparkasse had subsidised the readers.

Does this sound familiar?

Without a compelling reason, merchants will not upgrade their POS terminals. Without a buy-in from merchants no payment scheme will be successful.

No matter how much money is spent on advertising by credit card organizations and banks to promote contactless, NFC and mobile payments, without merchant buy-in there will be no end user acceptance. And without compelling reasons for merchants to upgrade the POS terminals there will be no merchant buy-in.

Now the Geldkarte has gained quite a bit of tranction in Germany but it took many years and it took the market catching up to the technology. Could this have been accomplished sooner with the right strategy?

There are a number of other issues that hold up the acceptance of contactless/NFC transactions but these will be addressed in further posts.