These guys should start their own credit card transaction aggregator (ala Mint), and gather user data that is expressly made available for market research. Make the analysis for privacy tradeoff more explicit and distribute profits.
Damn...waiving transaction fees is probably valuable enough to merchants, they would freely contract the right for the processor to utilize the information for those purposes.
However, that information would still be non-public and likely run afoul of insider trading. That said nothing prohibits companies from making this information public in real-time and maybe it makes sense for the SEC to require publicly traded companies to make this information public in real-time.
I imagine this might fall under the mosaic theory (that non-insiders are able to undertake original research to correlate a wide variety of individually non-material data to form an opinion about a security). As far as I know, such actions (by non-insiders) do not fall afoul of insider trading prohibitions. Otherwise, how would stock analysis work?
Whether a card processor's handling of financial transaction flow would be viewed as non-insider is something that I don't know. I can make reasonable arguments either way.
Well, the problem with all of this is that you're assuming the market opportunity for trading on this sort of information is large.
Exploiting a pricing failure eventually corrects it: buying up undervalued options eventually raises the price to where they're no longer undervalued. An important question is how much you can buy up before they're priced correctly and how much you can make off doing so.
It's possible that these two gentlemen were already exploiting the price difference to with an order of magnitude of its potential. Being able to reliably make ten million or so a year is pretty cool, but not enough to run a sizable business off of -- it might not even be worth it for the 'big boys' to exploit. If you could pull in hundreds of millions or billions of dollars a year, then you're talking -- but you'll be splitting it N ways, with everyone else who decides to exploit the same trick.
> A credit card processor that charges 0% fee on transactions would have a huge advantage when pitching retailers.
So why, you may ask, do we have such high fees for credit card transactions? And believe me: they ARE high. No more than a hiccup when debit card fees were restricted to roughly $0.15/transaction but CREDIT card fees (which use the same systems) continue to be a substantial fraction (a few percentage points) of every purchase.
It's because no one is pitching retailers. The cards are sold to the consumer (who pays nothing). The retailer pays, but the contracts they are offered do not give them space to do much other than refuse to take a type of credit card (and give up a bug chunk of their business) or to accept them and pay the fees.
Huge barriers of entry. In order to make a card product that is really competitive to Visa & Mastercard, it's a chicken and egg problem - you need on board both a lot of merchants (to make the product useful to customers), a lot of customers (to make the extra effort viable to merchants), and a lot of money (measured in billions, not millions) to get it started - even major tech companies like Ebay/Paypal and Stripe are too small to afford this kind of effort on their own.
If you make the product really attractive to merchants, then you will have a problem getting customers. You will have to compete with the existing credit card products. Banks make a lot of money on those existing products and are highly motivated to ensure that the product you propose never, ever gets off the ground. History shows that they are both willing and able to (a) use this money to "buy" customers over with bonuses that you won't be able to match because you aren't charging the merchants so much; and (b) aggressively try to keep you out of all the infrastructure - there are many 'moats' that they control, including the large settlement systems, technical infrastructure installed at merchants (forget about using the same POS terminals to read your cards and Visa/MC, even if it's technically easy), etc.
There have been and are many attempts to make new alternative card products, but they aren't realistic to succeed. EU considers a wish for such a card system every couple years, but it turns out to be unfeasible even given the combined financial resources of the interested governments. Right now Russia has a strong motivation to support and subsidize such a system, but again, they don't want it that much to warrant the huge expenses for the relatively low expectations of success.
As a retailer you can negotiate like crazy with credit card processors. One of my cofounders worked at a processor and using his knowledge bank managaged to get us absolutely insane rates vs the "walk up" rate.
It probably saves us thousands to tens of thousands of dollars each year and we don't even have a huge amount of revenue.
I like that idea way more than selling [aggregated, anonymized] consumer purchasing habit reports to advertisers, which is what I figure tons of payment processing companies are doing now (I have no source on this, but it seems obvious),
I believe LevelUp does this. They don't allow retailers to use any credit card as things still need to go through the LevelUp system via QR code, but as far as I know they don't charge for processing.
