It’s been a fantastic and eye-opening time at SXSW this year. Have met so many interesting people and witnessed a number of groundbreaking presentations. One of those presentations that was particularly relevant to small businesses was given by Seth Priebatsch, the Chief Ninja of SCVNGR and LevelUp, about something called “Interchange Zero”.
Interchange Zero is an up and coming concept for how money will be exchanged in the near future – when the mobile wallet replaces an actual wallet (with plastic cards) as the preferred method of payment. There will be a lot more options than there are currently for how you choose to pay for things. This will revolutionize commerce, as many business models will evolve that do not require merchants to pay debit cards fees on transactions. Credit and debit card fees cost merchants (and indirectly, consumers) upwards of 50 billion dollars per year that are collected by financial institutions. If and when Interchange Zero is achieved, this 50 billion dollars could go back into the economy and create a boon in many ways . . . putting more money back into the merchant and the consumer’s wallet and increasing spending with new companies who are paving the way for this revolution.
The new companies that do not charge transaction fees for transferring funds from the consumer’s bank account to the merchant’s account are likely to explore new business and revenue models. Seth speculates that game mechanics will be involved in many of these new models, including the game mechanic known as the ‘sunken reward’. The sunken reward is a reward that is achieved by virtue of showing up in a particular place – no effort is required by the user. So for example, a customer may be rewarded by showing up at a business and checking in with a particular service that grants them a coupon, just for showing and and using that service. This coupon will spur customers to spend money that they may have not spent before, bringing the merchant additional revenue. The company providing this service will make money by charging the merchant a fee for the service, but not for the money transfer, which would be done for zero cost.
An additional game mechanic that could be deployed would be the ‘’progression dynamic’. This tactic has been proven statistically to generate loyalty and can be seen today in such basic tactics as ‘punch cards’, which reward the customer after a number of visits with a free something. This kind of dynamic will be tracked on the customer’s mobile wallet and companies could get very creative in how the customer is rewarded – much more sophisticated than a simple punch card. This kind of service, again, generates higher revenue for the merchant and a fee would be paid for the service, but not for the money transfer.
Seth speculates that Interchange Zero is the next big thing that could revitalize the economy. Just as the Internet leveled the playing field by making information transfer free and easy – creating an economic boom – by removing the transaction fees involved in debit card industry, a new world of monetary exchange will come about. Stay tuned to see what happens in this space over the next couple of years – the mobile wallet is going to give birth to a new model for how customers and retail businesses interact, which will be a very good thing for small businesses.
To learn more about Interchange Zero, check out this article by Seth Priebatsch on INC.Google+