11 ms·

Payments: The end of a monopoly

80 points by niuzeta 12y ago

rahimnathwani 12y ago
tl;dr: Banks' revenue from credit cards is under threat from payment mechanisms which bypass them: - Paypal encourages bank transfers in some countries, to avoid cc interchange fees - Bitcoin - Telecoms operators' mobile payment services - Store-specific prepaid cards Furthermore, payments could become a loss leader for companies that make revenue from other sources (like ads or data). This would increase competition and further threaten banks' revenue from payments. EDIT: As dllthomas pointed out below, loss leader isn't the right term here. Payments could be cross-subsidised by other services (e.g. ads) which are enabled/enhanced by the data/relationships from payments.
- rayiner 12y ago
  > make revenue from other sources (like ads or data) Just what we need, mining credit card history to target ads. :( If this is the future of payments, I'd rather have the monopoly.
  - deleted 12y ago
    [deleted]
  - hassanhassan 12y ago
    The future is already here. Cardlytics (a card-linked marketing company) has partnerships with 400+ financial institutions, and claims to have insight into consumer purchase behavior for ~70% of U.S. households and ~30% of U.K. households according to their Crunchbase profile.
    - rahimnathwani 12y ago
      As far as I can tell from their web site, the customer data doesn't leave the financial institution, and the ads appear only on communication from that institution (e.g. on the credit card statement).
  - smsm42 12y ago
    Beats how they are targeted now. I've visited a local garbage removal company's site once on a device without adblock and for a month I saw nothing but garbage (literally and figuratively) ads on it. I haven't seen an ad relevant to me in years. I'm not actually that concerned that advertisers would show me ads relevant to me. It's just they are doing so horribly poor job right now both in targeting and in delivery that I have to block them out. It's like living in a company of an idiot with a logorrhea.
  - pjc50 12y ago
    I assumed that already happens. It certainly does on loyalty and store cards.
- dllthomas 12y ago
  Is "loss leader" really right, when you're selling ads or data? It seems more "cost of production"...
kephra 12y ago
I mainly use credit card and paypal for one reason: Give me 2% discount and I pay cash, or I pay in the US way, and you lose 3%. This of course works best in countries like Germany, where credit cards and paypal are not widely accepted.
- kijin 12y ago
  In South Korea, it is illegal for merchants to offer different prices based on the payment method. The law was intended to encourage credit card payments, because the paper trail makes it more difficult for merchants to under-report their tax obligations. (And the card companies lobbied hard, of course.) In practice, merchants have found workarounds, such as offering more loyalty points for cash payments. Some of these workarounds are legal, some are not, but in any case the government is changing its stance on credit card payments due to soaring consumer debt. Now they're trying to encourage debit card payments . . .
  - sliverstorm 12y ago
    I love my credit cards precisely for the paper trail! Makes everything much easier- tracking my finances, doing my taxes, etc...
    - Sami_Lehtinen 12y ago
      I always pay by card. I do have some cash for emergencies but I withdraw more maybe yearly. So that means I use cash just a few times per year. I know that many people do not carry any cash at all. Our they have something like 20€.
    - levosmetalo 12y ago
      The same reason you love it is the reason I don't use credit cards. I don't like anyone having paper trail of all my purchasing history. And I don't use any loyalty cards, since that's just another way of tracking. Offering 2% payback on credit card purchases gives those companies a way to upsell you a lot of unwanted stuff because they can target you very accurately, and in the end you pay more in total. I like the fact that in Germany people don't use credit cards at all, and EC cards rarely, or only for purchases they deem are worth to be tracked, like utility bills or similar. Then, if my landlord complains that I didn't pay on time, I have my bank on my side to happily provide transaction id of the payment as an evidence.
pbreit 12y ago
This article just proves that the monopoly is not going anywhere anytime soon. The Square Wallet is gone, Simple sold itself to a bank for cheap and bitcoin is still looking for a reason to exist. For starters.
- jpatokal 12y ago
  From the friendly article: For the most part, however, the challenge is not head-on. In fact, by making it easier to buy things, most new payments services are pushing extra business to the existing channels, dominated by banks. ... In the long run, banks risk becoming the providers of a cheap, commoditised service, with most of the money in the payments business going to firms that make customers’ lives easier or provide new services. ... Even worse for banks would be a future in which people begin to store more of their money outside the banking sector and make payments that are not tied to a formal bank account.
- lukifer 12y ago
  Bitcoin has plenty of reason to exist, even if it never replaces federal reserve notes (and it probably won't): low-fee international transfers, a hedge against volatile local currencies, and micro-payments/micro-donations.
deleted 12y ago
[deleted]
ihuman 12y ago
Google cache allows you to bypass the paywall: https://webcache.googleusercontent.com/search?q=cache%3Awww.economist.com%2Fnews%2Fspecial-report%2F21601624-and-no-end-new-ways-pay-your-bills-end-monopoly&oq=cache%3Awww.economist.com%2Fnews%2Fspecial-report%2F21601624-and-no-end-new-ways-pay-your-bills-end-monopoly https://webcache.googleusercontent.com/search?q=cache%3Awww....
- davidw 12y ago
  A subscription to The Economist is well worth the money, in my opinion.
  - icebraining 12y ago
    If only the digital subscription didn't cost twice as much in my country than it does in the US, even though we're poorer. But hey, I get a tree planted in my name! /s
    - davidw 12y ago
      The digital subscription is pretty useless terms of getting a cheaper deal as it costs as much as the print edition. The information is the same though, and the Android app is pretty good, so I've mostly switched to reading it on my tablet. Also, I like getting it on Thursday night, rather than waiting for the Italian postal system to take their sweet time about delivering it (or not).
  - hessenwolf 12y ago
    How much overlap would it have with my digital subscription to the FT?
    - davidw 12y ago
      Probably a lot. They're fairly similar publications. Indeed, I wouldn't mind subscribing to the FT, but I simply don't have enough time to read as it is.
beat 12y ago
Try to not be US-centric when thinking about this. There are some very interesting (and often strange) payments systems in use around the world. Really exotic systems like Bitcoin stand a much better chance of catching on at first in smaller countries, shaking the issues out before they face the complex US and EU government/commercial orgies.
- brazzy 12y ago
  Paypal supports quite a lot of such exotic payment systems, that's an important part of their offering.
abalone 12y ago
Some cold water: Square Wallet was discontinued 2 days after this article was published. If that doesn’t convince you to take these puffy “payments revolution” pieces with a huge grain of salt I don’t know what will. They tend to be big on exciting futuristic hype and pretty poorly reasoned when it comes to actual analysis. For example, it just blasts on through the “PayPal accepted at major retailer!” opening without even touching on whether there’s a reason for consumers to use it. Hint: not much. Credit cards offer rewards and don't require entering your phone number, plus have well established consumer protections. We now know that Simple was incredibly overhyped. It wasn’t a revolutionary un-bank, it was a regular banking UI layer with maybe a couple more budgeting features and a more modern design. It was acquired by a bank -- not exactly a monopoly killer. M-PESA is cool but it is not the “end of a monopoly”. It is a practical solution for an underserved market. The article even notes that fewer people even use banks in the first place. Ergo, not ending a monopoly. Bitcoin, too early to tell what niches it may find (maybe international transfers). But none of its coverage AFAIK has made a compelling argument for why ordinary consumers would generally choose it over cards. Hard to see how that would break that monopoly.
- dasil003 12y ago
  > We now know that Simple was incredibly overhyped. It wasn’t a revolutionary un-bank, it was a regular banking UI layer with maybe a couple more budgeting features and a more modern design. Simple was indeed overhyped, but your characterization is too far in the other direction. Aside from having a truly great web and app UI in a field with across-the-board atrocious UI, Simple provided three killer features that I never found anywhere else: 1) Link other bank accounts and push/pull money at will. Yes it still is slow going through ACH, and yes it still feels like the dark ages compared to European banking, but it works. 2) Immediate push notifications to my device as soon as charges hit. I know this should be trivial, but other banks I've used do not seem capable of this. Heck they don't seem capable of creating an app that won't crash my phone, but still, Simple does it, often within seconds of the physical transaction occurring. 3) Free incoming wire transfers. There must be some other bank that does this right? Well, I haven't found it. Heck, even when I wired money to my company's bank account to exercise stock options some mysterious fee was taken out somewhere and no one at any bank ever owned up to it. I mean I was literally in international branches and on the phone for over an hour and no one could explain who took a cut and why. Well, with Simple I can wire myself money from overseas, and true to their word, every penny shows up unmolested. They may have failed in their stated goal of revolutionizing the bank industry from the ground up, but also when they said that they probably had no real idea of the regulatory minefield they were getting into. In the end the product they created may be less than we hoped for, but it is a damn good product regardless.

80 points by niuzeta 12y ago

tl;dr: Banks' revenue from credit cards is under threat from payment mechanisms which bypass them: - Paypal encourages bank transfers in some countries, to avoid cc interchange fees - Bitcoin - Telecoms operators' mobile payment services - Store-specific prepaid cards Furthermore, payments could become a loss leader for companies that make revenue from other sources (like ads or data). This would increase competition and further threaten banks' revenue from payments. EDIT: As dllthomas pointed out below, loss leader isn't the right term here. Payments could be cross-subsidised by other services (e.g. ads) which are enabled/enhanced by the data/relationships from payments.

rayiner 12y ago
> make revenue from other sources (like ads or data) Just what we need, mining credit card history to target ads. :( If this is the future of payments, I'd rather have the monopoly.
- deleted 12y ago
  [deleted]
- hassanhassan 12y ago
  The future is already here. Cardlytics (a card-linked marketing company) has partnerships with 400+ financial institutions, and claims to have insight into consumer purchase behavior for ~70% of U.S. households and ~30% of U.K. households according to their Crunchbase profile.
  - rahimnathwani 12y ago
    As far as I can tell from their web site, the customer data doesn't leave the financial institution, and the ads appear only on communication from that institution (e.g. on the credit card statement).
- smsm42 12y ago
  Beats how they are targeted now. I've visited a local garbage removal company's site once on a device without adblock and for a month I saw nothing but garbage (literally and figuratively) ads on it. I haven't seen an ad relevant to me in years. I'm not actually that concerned that advertisers would show me ads relevant to me. It's just they are doing so horribly poor job right now both in targeting and in delivery that I have to block them out. It's like living in a company of an idiot with a logorrhea.
- pjc50 12y ago
  I assumed that already happens. It certainly does on loyalty and store cards.
dllthomas 12y ago
Is "loss leader" really right, when you're selling ads or data? It seems more "cost of production"...

kephra 12y ago

I mainly use credit card and paypal for one reason: Give me 2% discount and I pay cash, or I pay in the US way, and you lose 3%. This of course works best in countries like Germany, where credit cards and paypal are not widely accepted.

kijin 12y ago
In South Korea, it is illegal for merchants to offer different prices based on the payment method. The law was intended to encourage credit card payments, because the paper trail makes it more difficult for merchants to under-report their tax obligations. (And the card companies lobbied hard, of course.) In practice, merchants have found workarounds, such as offering more loyalty points for cash payments. Some of these workarounds are legal, some are not, but in any case the government is changing its stance on credit card payments due to soaring consumer debt. Now they're trying to encourage debit card payments . . .
- sliverstorm 12y ago
  I love my credit cards precisely for the paper trail! Makes everything much easier- tracking my finances, doing my taxes, etc...
  - Sami_Lehtinen 12y ago
    I always pay by card. I do have some cash for emergencies but I withdraw more maybe yearly. So that means I use cash just a few times per year. I know that many people do not carry any cash at all. Our they have something like 20€.
  - levosmetalo 12y ago
    The same reason you love it is the reason I don't use credit cards. I don't like anyone having paper trail of all my purchasing history. And I don't use any loyalty cards, since that's just another way of tracking. Offering 2% payback on credit card purchases gives those companies a way to upsell you a lot of unwanted stuff because they can target you very accurately, and in the end you pay more in total. I like the fact that in Germany people don't use credit cards at all, and EC cards rarely, or only for purchases they deem are worth to be tracked, like utility bills or similar. Then, if my landlord complains that I didn't pay on time, I have my bank on my side to happily provide transaction id of the payment as an evidence.

pbreit 12y ago

This article just proves that the monopoly is not going anywhere anytime soon. The Square Wallet is gone, Simple sold itself to a bank for cheap and bitcoin is still looking for a reason to exist. For starters.

jpatokal 12y ago
From the friendly article: For the most part, however, the challenge is not head-on. In fact, by making it easier to buy things, most new payments services are pushing extra business to the existing channels, dominated by banks. ... In the long run, banks risk becoming the providers of a cheap, commoditised service, with most of the money in the payments business going to firms that make customers’ lives easier or provide new services. ... Even worse for banks would be a future in which people begin to store more of their money outside the banking sector and make payments that are not tied to a formal bank account.
lukifer 12y ago
Bitcoin has plenty of reason to exist, even if it never replaces federal reserve notes (and it probably won't): low-fee international transfers, a hedge against volatile local currencies, and micro-payments/micro-donations.

deleted 12y ago

[deleted]

ihuman 12y ago

Google cache allows you to bypass the paywall: https://webcache.googleusercontent.com/search?q=cache%3Awww.economist.com%2Fnews%2Fspecial-report%2F21601624-and-no-end-new-ways-pay-your-bills-end-monopoly&oq=cache%3Awww.economist.com%2Fnews%2Fspecial-report%2F21601624-and-no-end-new-ways-pay-your-bills-end-monopoly https://webcache.googleusercontent.com/search?q=cache%3Awww....

davidw 12y ago
A subscription to The Economist is well worth the money, in my opinion.
- icebraining 12y ago
  If only the digital subscription didn't cost twice as much in my country than it does in the US, even though we're poorer. But hey, I get a tree planted in my name! /s
  - davidw 12y ago
    The digital subscription is pretty useless terms of getting a cheaper deal as it costs as much as the print edition. The information is the same though, and the Android app is pretty good, so I've mostly switched to reading it on my tablet. Also, I like getting it on Thursday night, rather than waiting for the Italian postal system to take their sweet time about delivering it (or not).
- hessenwolf 12y ago
  How much overlap would it have with my digital subscription to the FT?
  - davidw 12y ago
    Probably a lot. They're fairly similar publications. Indeed, I wouldn't mind subscribing to the FT, but I simply don't have enough time to read as it is.

beat 12y ago

Try to not be US-centric when thinking about this. There are some very interesting (and often strange) payments systems in use around the world. Really exotic systems like Bitcoin stand a much better chance of catching on at first in smaller countries, shaking the issues out before they face the complex US and EU government/commercial orgies.

brazzy 12y ago
Paypal supports quite a lot of such exotic payment systems, that's an important part of their offering.

abalone 12y ago

Some cold water: Square Wallet was discontinued 2 days after this article was published. If that doesn’t convince you to take these puffy “payments revolution” pieces with a huge grain of salt I don’t know what will. They tend to be big on exciting futuristic hype and pretty poorly reasoned when it comes to actual analysis. For example, it just blasts on through the “PayPal accepted at major retailer!” opening without even touching on whether there’s a reason for consumers to use it. Hint: not much. Credit cards offer rewards and don't require entering your phone number, plus have well established consumer protections. We now know that Simple was incredibly overhyped. It wasn’t a revolutionary un-bank, it was a regular banking UI layer with maybe a couple more budgeting features and a more modern design. It was acquired by a bank -- not exactly a monopoly killer. M-PESA is cool but it is not the “end of a monopoly”. It is a practical solution for an underserved market. The article even notes that fewer people even use banks in the first place. Ergo, not ending a monopoly. Bitcoin, too early to tell what niches it may find (maybe international transfers). But none of its coverage AFAIK has made a compelling argument for why ordinary consumers would generally choose it over cards. Hard to see how that would break that monopoly.

dasil003 12y ago
> We now know that Simple was incredibly overhyped. It wasn’t a revolutionary un-bank, it was a regular banking UI layer with maybe a couple more budgeting features and a more modern design. Simple was indeed overhyped, but your characterization is too far in the other direction. Aside from having a truly great web and app UI in a field with across-the-board atrocious UI, Simple provided three killer features that I never found anywhere else: 1) Link other bank accounts and push/pull money at will. Yes it still is slow going through ACH, and yes it still feels like the dark ages compared to European banking, but it works. 2) Immediate push notifications to my device as soon as charges hit. I know this should be trivial, but other banks I've used do not seem capable of this. Heck they don't seem capable of creating an app that won't crash my phone, but still, Simple does it, often within seconds of the physical transaction occurring. 3) Free incoming wire transfers. There must be some other bank that does this right? Well, I haven't found it. Heck, even when I wired money to my company's bank account to exercise stock options some mysterious fee was taken out somewhere and no one at any bank ever owned up to it. I mean I was literally in international branches and on the phone for over an hour and no one could explain who took a cut and why. Well, with Simple I can wire myself money from overseas, and true to their word, every penny shows up unmolested. They may have failed in their stated goal of revolutionizing the bank industry from the ground up, but also when they said that they probably had no real idea of the regulatory minefield they were getting into. In the end the product they created may be less than we hoped for, but it is a damn good product regardless.