MasterCard Laying Down “Digital Wallet” Fee On Mobile Payment Providers, Such as PayPal and Square

Digital-Wallet fee being leveraged by MasterCard

MasterCard have announced that it plans to place a fee on digital wallet operators like PayPal.

Starting in June, the fee – which largely singles out PayPal over others – will ensure that the eBay owned payment company is kept in check after generally being given a "free ride" in the payments space.

Despite the news having been announced earlier this year, rumours have been on the rise, finally leading eBay's share price to fall.

"The fact that PayPal, as the largest digital wallet player, could be singled out by a network like this is clearly negative," said Evercore Partners analyst Ken Sena.

"Payment networks are taking the gloves off," wrote Nomura Equity Research analysts Bill Carcache and Brian Noward in a note to investors on Monday.

"The incumbents will do everything in their power to prevent PayPal from riding on the rails without extracting a toll," they continued.

The fee upon PayPal, along with other digital wallet platforms – such as Google Wallet, Square, iZettle and probably PayPal founder Max Levchin's new mobile payment platform Affirm, to name but a few – comes as their growth in the payments space has impeded upon that of MasterCard's.

“Now that PayPal has started moving to the physical point of sale… competitive intensity levels are rising as PayPal encroaches deeper into what has traditionally been the incumbents’ turf,” Nomura’s Carcache and Nowak said.

President of MasterCard's US Markets, Chris McWilton, complained at a conference last month that PayPal "rides for free," before adding: “they’ve got to be cautious that they don’t get too big and start making people wake up and say wait a minute, I’m actually losing business here because of your moving into the physical space.”

PayPal recently expanded their mPOS device PayPal Here into Japanese territories to capitalise upon the incredible number of small businesses in the region. This came after their arrival in the UK with a reworked chip & pin device to help capitalise upon the small business market there too.

Do you think that this digital wallet fee is the right move for Mastercard and other card issuers?

Will issuing a fee mean the growth of mobile payments begins to slow?

Let us know by sounding off with your comments in the space provided below.

 

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Comments

  1. Bini

    Levying a fee by Mastercard on its digi wallets is a good move ..the only important point is that it be a sensible fee . Charging a fee would keep the wallet holder continously engaged i.e he would ensure that he uses the wallet rather than leaving it idle after registeration. Surely there is a cost to maintain these wallets and their transactions in the most secure way ..therefore its justified to charge but it should not prove to be expensive to the user.

    1. Author
      Vaughn

      Indeed, I think the fee will be absorbed by PayPal and other mobile wallet platforms rather than the user themselves – much like a retailer does when letting a customer pay with a credit card. It does seem like a slightly bullish move seeing as MasterCard and Visa both have their own mobile payment and wallet platforms that they would prefer users to take up.

  2. robt sadeckas

    It will be interesting to see how Visa and MasterCard defend applying these charges to Paypal and Google and not their own wallet offerings. I agree the wallet providers will probably absorb the additional cost, but they also have at their disposal the ability to surcharge which can raise the visibility of this charge which can prompt the consumer to pursue the matter with their bank (bad PR) or provide motivation to select another funding source – driving business away from the card schemes.

  3. David Strebinger

    I think all companies in the mobile payments space still have a lot of work to do in creating business models that work for all parties involved. MasterCard and Visa have an important role in the payment ecosystem. Every major company is vying for their position and trying to stake their claim. I think the real interesting player in this industry will be Apple. They are quietly building, learning, and innovating, while others are boasting about their latest initiative. This is a very robust and political ecosystem that has a long history and a lot of legal and logistical challenges that remain to be solved before anyone will emerge as a clear leader in the space. MasterCard, Visa and PayPal are a long way for solving it and this is just one attempt at keeping things level between the parties.

  4. Philip Cohen

    Of the global payments business, Visa has ~61%, MasterCard ~39% and Amex ~8% (ie ~98%); the clunky, unscrupulous, middleman PayPal has ~1%, most of which rides on the backs of Visa/MasterCard …

    PreyPal has never been, and never will be, any serious threat to these major operators; and PreyPal’s attempt to expand into physical POS is simply a joke, and a very poor one at that; but Donahoe has to try to keep the atrophying eBay marketplace afloat somehow (maybe another “reduction” in eBay fees will do the trick—LOL) …

    And, the suggested additional MasterCard fee is the least of the clunky PreyPal’s problems. Give it another twelve months and the new “professional” digital wallets from Visa (V.me) and MasterCard (MasterPass) will have driven eBay’s hard working bilge pump, PreyPal, back into the rusting eBay bilge … http://bit.ly/UVXx53

    Oh, surprise, yet another “reduction” in eBay fees … http://bit.ly/YvxFEg

    And then there is the ugly reality for consumers dealing with the rest of the atrophying, clunky, manipulative, unscrupulous eBay complex …
    “eBay-Facilitated Shill Bidding Fraud on eBay Auctions: Case Study #5” … http://bit.ly/11F2eas

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