Low-Value Payments: Looking For the Code Cracker

Report Summary

Low-Value Payments: Looking For the Code Cracker

Aite Group reveals that in 2004, Hong Kong had the highest number of non-transit, electronic low-value payments per inhabitant in the world, with 21.8 transactions per inhabitant, compared to 7.5 transactions per inhabitant in the United States. Yet, no c

Gwenn Bézard
Co-Founder and Research Director

Boston, MA, November 16, 2005 – In a new report, Low-Value Payments: Looking For the Code Cracker, Aite Group examines selected low-value (under US$10) payment strategies around the world and provides lessons for the United States. The report aims to answer the following questions: Is there a winning low-value payment strategy anywhere in the world? Is the U.S. issuers' approach likely to drive the extinction of cash? Should the United States create an e-purse consortium? What options do merchants have?

U.S. consumers make a total of 138 billion cash transactions annually or an average of 1.3 transactions per inhabitant, per day. About 50% of those transactions are under US$10. Approximately 95% of all transactions below US$10 are made in cash in the United States annually. While cash payments are losing ground to electronic payments across the board, they continue to dominate transactions below US$10.


Thus far, the United States has been no less successful at enabling low-value electronic payments by leveraging the existing card networks than the largest European countries have been by using de novo e-purse schemes. In the near future, the introduction of contactless bankcards wills likely boost U.S. issuers’ efforts to cannibalize cash. In the long run, however, unless merchant acceptance costs are dramatically reduced, the high cost of bankcard processing will limit the issuers’ ability to drive away large volumes of cash transactions below US$10. “Even if interchange rates are somewhat reduced, it is very likely that U.S. merchants will look for alternatives to issuers’ offerings, including solutions such as stored value cards, virtual prepaid cards, aggregation, and biometrics-based ACH payments,” notes Gwenn Bézard, a research director with Aite Group and author of the report.

Aite Group anticipates that in the coming years, competition will intensify between non-prepaid, bankcard-only approaches (e.g., contactless bankcards a la Visa and MasterCard, aggregation a la Peppercoin) and prepaid approaches that leverage ACH, bankcard, and closed-loop networks as the underlying funding mechanism (e.g., virtual prepaid cards a la Peppercoin, stored value cards a la Valuelink, Paypal-enabled stored-value cards, biometrics payments a la Pay by Touch, and mobile payments a la Payzy).

This is a 62-page Impact Report. Clients of Aite Group's Retail Banking service can download the report.

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