Digital Matters - Issue 40

I have many cards in my wallet. There are three credit cards, one debit card, two grocery-store cards, four airline cards, two health- and dental-insurance cards, one rental-car card, two department-store cards, two phone cards, and a health-club membership card. I'd carry many more if I could. But I need room for my driver's license and my Fast Company business cards, so I leave the rest at home.

What I would like is a "Uni-Card": one piece of plastic with a smart chip in the middle that would house all of my data, securely, in one place. It would be nice if the chip were removable, so that I could insert it into my cell-phone or my PDA in the event that I needed to transact business wirelessly. Eventually, I would also like to have all of my genetic data (and all of my children's genetic data) on a Uni-Card to help ensure our safe passage through the health-care system.

The question is, Why don't I have something like a Uni-Card now? Why hasn't it been offered to me by an industry leader like American Express, MasterCard, or Visa? The answer is -- well, the question is the answer. Which is to say that American Express, MasterCard, and Visa are stuck in a legacy model that they are doomed to protect. They can't afford to offer a Uni-Card because in order to do so, they would have to install an entirely new operational system, enter into a host of nonexclusive agreements, and, in the process, produce negative quarterly results for at least one year and probably two.

Imagine for a moment that you are standing before the board of directors of American Express, and you say, "I have an announcement to make: I've decided to lose money for the next four to eight quarters." How long before the board throws you out the window? Ten minutes? Three minutes? Instantly?

The good news is that a consortium of new- and old-economy companies will soon be introducing something very much like a Uni-Card. Of course, they don't call it that. They call it a "joint company to deliver smart card-enabled security products and services for e-business payments and identity protection." And that's what it is -- for the moment. But what these companies have in mind, what they are working toward, is the Uni-Card: one card containing all of your data, encrypted and password-protected -- for whatever you might need, whenever and wherever you might need it.

Now, I know what you're thinking: How are they going to do that? Visa is everywhere you want to be. MasterCard is ubiquitous. American Express has a global network and "membership rewards." How can back-office, no-brand-name companies compete with established brands like these?

Here's the E-Z test. Walk into any retail operation, buy $100 worth of stuff, and ask the following question: Instead of paying a $0.25 transaction fee on that $100 purchase, would the store rather pay a $2.50 fee (in the case of MasterCard), or a $3.25 fee (in the case of American Express)? Then walk into a car dealership and put $3,000 down on the acquisition of a three-year lease. Ask the car dealer how a $0.25 transaction fee stacks up against a Visa fee of $75. So much for established brands. It's a cents-on-the-dollar no-brainer.

Many companies are involved in the development of the Uni-Card, but the key player is First Data Corp. First Data processes 250 million credit- and debit-card transactions every week. It serves more than 2 million merchants, 1,400 credit-card issuers, and millions of consumers worldwide. In concert with Certicom, Compaq, CyberSafe, InterWorld Corp., and Transaction Systems Architects Corp., First Data is building, piece by piece and under the cover of e-commerce, a smart card for all kinds of commerce and all kinds of customers.

The hook for First Data will be that 25-cent transaction fee. The hook for consumers will be Uni-Card's convenience, encryption technology (privacy protection), and competitive interest rates. The combination of just those two hooks alone will transform the credit-card industry. American Express, Discover, MasterCard, and Visa will have to cut their transaction fees to compete, which in turn will cut their revenue streams, which will cause Wall Street and member banks to get ugly. Transaction fees -- a key link in the value chain that has sustained these enterprises for as long as anyone can remember -- will deconstruct right before our eyes.

Uni-Card is only part of the hurricane bearing down on the credit industry. Consumer-advocacy and small-business-advocacy companies will also have a huge impact. To give you some idea of how important these companies will become, consider the following arithmetic. Roughly speaking, the average American family spends one-third of its annual income on living expenses; one-third on local, state, and federal taxes; and one-third on interest payments (mortgages, credit cards, car loans, student loans). The average small business (and small businesses are the engine of economic growth in North America today) also spends a healthy chunk of its revenue on interest payments of various kinds, such as business loans and leases. Altogether in the United States, there are roughly 140 million active credit profiles -- which constitute a total of $8 trillion in consumer debt.