The announcement that JPMorganChase is bringing their merchant network in-house underlines the increased value of owning both the issuer and merchant side of a payment transaction.  As the spread between issuer income and merchant expense becomes narrower, strategies like those announced by Chase this week and previously, by Bank of America, mean that these giants will have the control and muscle to come out ahead when the smoke clears in the payments market.

The ability to own both sides of the payments equation is an important step in one's ability to maintain control in a quickly transitioning market.  Consider the dynamics taking place in the U.S.:  Non-cash/check payment transactions have breached the trillion dollar wall and will continue to go higher.  Some regulatory oversight of merchant interchange fees is likely and issuers can expect new controls on pricing and fees.

The value of a payments processing network is clearly seen in the valuation of both MasterCard and Visa's companies.  The movement of payment transactions through these networks is on a sustained upward trajectory; representing billions of dollars of processing fees which will not be impacted by any change in the interchange fee structure. Chase, like Bank of America, wants sole control over those fees and sole control over those relationships.

However, with MasterCard and Visa now competitors in the network market, former partners like Chase have recognized that without this ownership, they will be subject to the vagaries of changing market dynamics.  The investment they have made in their issuer portfolios will be stepped on by the regulatory storm troopers as sentiment grows for consumer pricing and interchange fee relief.

This translates into the narrowing of the gap between issuer income and merchant fees in the current interchange structure.  Therefore, owning both sides of the relationship will be a key factor in long term profitability and strategic product enhancements that will be required in a new payments environment.