Ron Mann on Credit Cards, Moore's Law and the Wal-Mart Bank

Most interesting post I’ve read all week is by Ron Mann, guest blogging at Credit Slips, on the Wal-Mart bank and the possibility of competition with Mastercard and Visa. Money shot:

The market for consumer payment systems in our country is dominated by a pair of national networks, whose market shares have grown rapidly over the past 30 years. During those thirty years, the price of the product -- which is at its core a sophisticated information processing service -- has remained stable even as Moore's Law has halved the cost of information processing time after time after time after time.

For obvious reasons, it is enormously difficult to challenge Visa and MasterCard. … If we were to look for a challenger, and if we look past the possibilities of Google and PayPal (who essentially piggyback on Visa/MC), Wal-Mart certainly would be the most formidable competitor. Wal-Mart has a network of almost 4000 locations in the United States, with tens of millions of devoted customers. Wal-Mart is highly skilled at designing products to meet the desires of mainstream American consumers. A payment system designed by Wal-Mart, accepted at all of its stores, could penetrate the consumer consciousness more effectively than any product since the credit card.

And if the purpose of Sam-Pay was to lower the costs of payments -- cost-cutting being Wal-Mart's core competency -- then it presumably would shift spending from credit cards, which would slow the financial distress associated with credit card use. To be sure, there is always the possibility that Wal-Mart could follow the lead of Target and transform itself into a consumer-credit operation with an in-house retailing arm. Wal-Mart's efforts to open full-service banks in Mexico show that this is at least a possibility. But, my prediction is that Wal-Mart will focus on cost, as it has with the check-cashing services and money orders that are offered in its stores in most states.

More in the blog here, and in his forthcoming book.