Making Waves: The Free Payment Model

In 2012, a popular mobile payment vendor launched a new credit card processing campaign, claiming that the real value of mobile payment processing and low cost credit card processing vendors was in their ability to track customer data to the end of delivering targeted marketing campaigns. This will help merchants, they say, increase traffic and dollars to stores, all the while offering the ability to use mobile devices to enable the process.


In many ways, this doesn’t reflect a low cost credit card processing, but free. All it asks in exchange is the embracing of a new kind of business model, which places value on accrued spending levels for the merchant. The merchant using the vendor only pays when a certain amount of value has been achieved from the use of the service.


This sort of model flies in the face of current accepted trends, which view the low cost credit card processing service itself to be the model, rather than the marketing and leveraging of information gained from the service. Interestingly, it seems to be catching on. For the first few years of the model, companies that use it and similar approaches were in the red for payments processing fees. Now, however, they are for the first time showing profits. A gamble early on appears to be paying off. It took a lot of clever bookkeeping to make it happen—strategies such as bundling swipe fees into a monthly charge instead of a per-swipe one, for example—but the strategy is seeing enough buy-in from new users that it is now generating profit.


Whether or not catches on across the board remains to be seen, but for now, the early risk of merchant-driven campaigns seems to be paying off for early adopters of the business model.