Payments: The end of a monopoly
economist.com
economist.com
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.
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.
For instance, you can sign up for a "360 Checking Account".[2] The account is free(no fees), and it has no minimum balance. You wanted the ability to "link other bank accounts and push/pull money at will": you can link up to 3 other bank accounts held in your name at other US banks and freely (in both senses of the word) push or pull money between them using ACH (which will take a few days to clear).
You asked for "immediate push notifications when charges hit". The same account offers a debit/credit card and you can set a (configurable) minimum threshold and receive a notification by your choice of email or text message for any transactions over that amount. Set the minimum to $1 and you will get notified for all transactions.
You asked for "free incoming wire transfers". This same account DOES charge a fee if you send a wire (and it is not a normally available feature), but receiving wires is free. That doesn't guarantee that "some mysterious fee [won't be] taken out" if someone else like the sending bank takes it, but WE won't charge you.
And at the same time, you get a checking account with (free) bill pay, a huge network of (free) ATMs, and you even get paid interest on your balance.
None of this is all that special. Sure, they are good practices, and not every bank offers them but there ARE some major players in the industry besides startups like Simple that are focused on offering a good product for their customers.
Standard disclaimer: I clearly have a bias here since I happen to work for Capital One. Also I am not authorized to make public statements for them; I am merely summing up the facts you can read about on the linked web page. Or call our customer service line to confirm these details.
[1] http://www.forbes.com/pictures/eehd45egjjk/9-capital-one-fin... [2] https://home.capitalone360.com/online-checking-account
As for the others, linking external bank accounts for transfers is actually a super common feature? Not sure what you mean. And lots of banks have apps for checking charges (I don't know about realtime alerts, but that seems like more of a design choice).
I think this supports my claim that Simple was more of a premium UI on top of standard banking features than anything really disruptive. But in the end we agree on that.
Also not sure why you are using past tense for Simple. I am still using it and the fees have not changed so far to my knowledge.
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.
https://webcache.googleusercontent.com/search?q=cache%3Awww....
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.
Just what we need, mining credit card history to target ads. :(
If this is the future of payments, I'd rather have the monopoly.
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.
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 . . .
In Germany Skonto (discount) for paying within 7 days is common business practice. But credit cards of course don't like it, if you use ask for discount for not using CC.
So far, yes.
Things are beginning to change because Chinese consumers are crowding into Korean stores, both online and offline. Even the President is concerned that the old system hurts the economy by turning away potential buyers. Guess what, one of the perks of being a semi-authoritarian culture is that if the President complains about something, everyone rushes to find an alternative ;)
In any case, I wish there were more competition in the payment processing scene of my country as well. Most people haven't even heard of PayPal here, let alone newer and better alternatives. Perhaps once we get rid of the ActiveX dependence, more startups will be able to enter the market.
As far as purchasing is concerned, PayPal is just another foreign merchant that accepts Visa and MasterCard. A withdrawal is just another international wire transfer. But since both transactions are international, if you combine them you get two currency exchanges and so you lose a lot of money. That, along with the fact that the whole process can easily take 2-3 weeks, is probably why nobody even bothers.
Besides, Korean banks already have a system that allows anyone to send money to anyone else, instantly, often for free. Nobody ever mails checks in Korea. This works perfectly well in our own walled garden. PayPal will probably never be able to compete with that, even when the other side is burdened with ActiveX crapware.
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.
And oddly enough, the first and last item on that list are not too far apart.
Banks / payment companies charge fees to count cash deposits, and they sell the currency back (coin rolls in particular) with a premium.
Skimming - coming and going.